On November 7, 2022, the district court in New Hampshire granted summary judgment in favor of the US Securities and Exchange Commission (SEC) against the blockchain payment network LBRY. This was the SEC’s third big win after beating Telegram and Kik. The case against Ripple is about to be decided, also on summary judgment.
Although the court’s decision did not break new ground, relying on fact-specific analysis based on the Howey test, the LBRY decision continues a trend of courts focusing on the specifics to determine whether tokens constitute an investment contract based on a 1946 test. Meanwhile, the cryptocurrency industry in the United States remains unregulated.
Is the US SEC Truly Seeking to Destroy Crypto?
In its latest filing, the SEC reaffirmed its tough stance against LBRY and the cryptocurrency industry as a whole.
A former federal prosecutor and defence attorney James K. Filan cited an SEC letter that stated: “a penalty equal to LBRY’s total pecuniary gain of $22,151,971 is fair and reasonable under the circumstances.”
“The SEC doesn’t want to regulate crypto; it wants to kill it in the US,” Filan explained. Jeremy Hogan, an attorney for the XRP community and YouTuber, says that the SEC “wants to prevent LBRY from selling tokens in the future.”
Another XRP attorney, Bill Morgan, described the SEC’s letter as an avoidable defeat in which the “judge has made a rod for his own back.”
Morgan contends that the judge erred when he stated that any sale of LBC over six years was an investment contract, even though he did not specify the transaction. This makes it more difficult for the judge to rule that future sales are not also investment contracts.
What Does This Mean for Ripple?
The Ripple lawsuit reflects the SEC’s stance on cryptocurrencies. The watchdog’s goal is to declare all XRP token transactions as securities transactions from the start, regardless of whether they occur in the primary or secondary market.
Ripple may be doomed in the United States if they fail to highlight the differences in their case and demonstrate the applicability of the Howey test.
If Ripple loses in district court, the question is whether it will appeal to an appellate court and, if necessary, the Supreme Court. The SEC is in the same boat.
An appellate ruling is far more important in terms of setting a precedent for the entire industry. As Ripple battles the overbearing SEC, its fate may set a precedent for the entire cryptocurrency industry.
At press time, the XRP price was still falling and was trading at $0.3440.
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