Judge Paul Barbadoro of the U.S. District Court for the District of New Hampshire has refused to make a definitive ruling on whether the secondary sale of LBRY Credits (LBC) qualifies as a security.
The U.S. Securities Exchange Commission filed a motion against LBRY in March 2021 over claims that the decentralized content platform offered unregistered securities for sale. The securities regulator won via a summary judgement in November 2022, but LBRY subsequently filed a motion to appeal the ruling.
One of the major points of the new case revolves around the question of whether secondary sales of LBC tokens should be treated as securities under existing securities laws. Secondary sales occur when traders buy and sell securities, while a primary sale involves trading from the company issuing the security directly.
Barbadoro stated in his ruling:
“Accordingly, I take no position on whether the registration requirement applies to secondary market offerings of LBC by persons or entities that are not subject to the injunction pursuant.”
Meanwhile, John Deaton, a lawyer representing many XRP token-holders, took to Twitter to share that he had reached out to Barbadoro to obtain clarification regarding the classification of LBC as security.
I asked the Judge to clarify that the token itself is not the security just as Judge Castel did in Telegram. He declined to do so because he said that specific issue wasn’t litigated and he believes in exercising judicial restraint. He wrote: “it suffices to say that merely… https://t.co/xR9AemS5Hq
— John E Deaton (@JohnEDeaton1) July 11, 2023
According to Deaton, Barbadoro responded that the issue of whether secondary sales of LBC qualify as securities have not been previously litigated and that he believes in “exercising judicial restraint.“
Barbadoro’s response and ruling is a setback for Deaton, who had hoped that the judge would provide a clear answer on the classification of LBC,
The recent ruling by Barbadoro potentially establishes a legal precedent that could be relevant to Judge Analisa Torres, who presides over the SEC’s case against Ripple in the upcoming months.
In June 2023, the SEC vs. Ripple case took a new turn when Judge Torres ruled that certain documents related to William Hinman, who served as the director of the SEC’s Division of Corporation Finance from 2017 to 2020, were made public. The documents provide insight into the SEC’s internal conversations and conclusions and have important ramifications for the ongoing litigation against Ripple Labs.
The documents contained Hinman’s 2018 speech in which he stated his opposition to the idea of treating cryptocurrencies like bitcoin (BTC) and ether (ETH) as securities. They were made public at the request of Ripple’s attorneys.
The U.S. SEC has not yet commented on Barbadoro’s ruling.
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