A New Hampshire district court judge has clarified that a security injunction ruled earlier in the legal battle between the United States Securities and Exchange Commission (SEC) and decentralized content-sharing and publishing platform LBRY applied only to direct sales of the project’s tokens.
The ruling came during an appeal hearing on January 30, 2023, settling an agelong debate between the SEC and the crypto community.
Judge Clarifies Ruling in LBRY v. SEC Case
The court initially ruled in favor of the SEC in November 2022, granting the commission’s request for a summary judgment filed in May 2021.
CryptoPotatoreported that the SEC sued LBRY in March 2021, alleging that the platform was selling its native token LBRY Credit (LBC), as an unregistered security.
The agency argued that the blockchain platform raised over $11 million in crypto and cash from investors from 2016 to 2021. The regulator found the sale of the LBC tokens as an investment contract and classified it as a security.
However, LBRY insisted that LBC was not a security as millions of people were active on the platform before any tokens were issued. The project also noted that it held no initial coin offering (ICO).
During the appeal hearing yesterday, the SEC asked the judge to clarify the first ruling, as it looked to prohibit the sale of LBC. Interestingly, the tides changed as the judge explained that the injunction only applied to direct token sales.
Notably, the ruling was greatly influenced by the efforts of attorney John Deaton, who was present as an amicus curiae.
A Potential Win for Ripple?
Deaton cited a paper by attorney Lewis Cohen, which evaluated all security lawsuits that have emerged in the U.S. since the creation of the Howey Test. The documents revealed that no court acknowledged an underlying asset as a security.
As Deaton’s persuasion broke the surface, the judge turned to him and said: “Amicus, I’m going to make it clear that my order does not apply to secondary market sales.”
The new development is a big win for the crypto community and could be helpful to Ripple in its ongoing case against the SEC.