The Ripple versus the SEC case has been the talk of the town for quite some time now. The crypto community was focused on it to see how a case pertaining to alleged cryptocurrency offerings being a security – would fare in court. But a lesser-known case might just provide clarity first – the SEC’s suit against LBRY scheduled for trial in September 2022.
Double Trouble
In 2021, the SEC filed a complaint against LBRY, Inc. where the SEC alleged that LBRY violated the Securities Act of 1933. The “accused” offered unregistered securities when it sold “LBRY Credits” to numerous investors. Including investors based in the United States, without registering with the SEC. As alleged, LBRY received more than $11 million in U.S dollars, Bitcoin, and services from purchasers in its offering.
In its answer, last year, LBRY pushed back on the agency’s claims and asserted several affirmative defenses including a selective enforcement defense and violation of equal protection under the Fifth Amendment accusation. Further, it grants, not sells LBC tokens, to third-parties in furtherance of the Foundation’s goals.
Now, LBRY has filed its ‘Reply Memorandum’ in further support of its motion for Summary Judgment as highlighted by James Filan, a famed attorney in a June 11 tweet.
#XRPCommunity #SECGov v. #Ripple #LBRY In the LBRY case, LBRY has filed its Reply Memorandum in Further Support of its Motion for Summary Judgment. https://t.co/XiazjF7Tfp
— James K. Filan 🇺🇸🇮🇪101k+ (beware of imposters) (@FilanLaw) June 11, 2022
In an argument, Defendant claimed that the economic realities “are Indisputably distinguishable from the sales at issue in Commission’s Prior Section 5 cases.” Further added:
“Ignoring the substance of LBRY’s brief, the Commission characterizes LBRY’s argument as a “formalistic approach” that looks only to whether “the defendant conducted an ICO and issued a white paper.”
But LBRY never suggested this narrative. ‘The non-existence of an ICO necessarily meant that a particular sale of a digital asset’ cannot constitute an investment contract. Rather, LBRY distinguishes its sales of LBC from the sales at issue in prior Section 5 cases.
Contrary to Plaintiff’s ‘minimal utility value’ statement, the filing asserted a different scenario. The evidence and sworn declarations submitted by LBRY demonstrated that >1000 people used LBC to transact on the LBRY Network daily. An attribute that the Commission (Plaintiff) couldn’t dispute for utility purposes.
Implications?
The LBRY court recently denied a request by the SEC to extend the trial date by about a month. This means that, unless there are additional scheduling changes, the LBRY case will be decided before the SEC’s lawsuit against Ripple Labs for failing to register their offer and sale of XRP.
This is significant because the court’s findings in the LBRY case could be cited in the Ripple case. In fact, the SEC tried to include a ruling in the LBRY case as precedent against Ripple Labs in the Ripple case.
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