Final Ruling on LBRY Raises Concerns for Ripple and XRP

While the judge has delivered a final ruling on the LBRY vs. SEC case, he failed to rule on LBC’s security status, raising concerns for Ripple and XRP.

The recent final ruling on the LBRY case by Judge Paul Barbadoro has sparked concerns within the XRP community regarding the forthcoming decision in the SEC vs. Ripple lawsuit.

Despite the victory for the Securities and Exchange Commission (SEC) in the LBRY case, the judge’s decision did not explicitly classify LBRY’s token, LBC, as a security or provide any clarity on its status.

This lack of clarity has created apprehension among XRP proponents, as they fear a similar outcome for Ripple, with the security status of XRP left unresolved.

The LBRY Case Ruling

In the LBRY case, the SEC successfully argued that LBRY, Inc. conducted unregistered securities offerings violating the Securities Act. The court granted the SEC’s motion for an injunction and imposed a civil penalty on LBRY.

However, Judge Barbadoro did not rule on whether LBC itself should be considered a security. This omission has led to criticism from pro-XRP attorneys who question the market guidance provided by the ruling and its potential impact on future regulatory decisions.

Implications for Ripple and XRP

Drawing parallels between the LBRY case and the SEC’s ongoing lawsuit against Ripple, some legal experts express concerns about the potential outcome and the lack of clarity surrounding XRP’s security status.

Attorney Jeremy Hogan, known for his analysis of the Ripple case, highlights that a similar result is possible for Ripple.

The final ruling is out in the SEC v. LBRY case.

The Judge did not rule on secondary sales (or, not surprisingly, the Major Questions Doctrine). He enjoined further violations and issued a penalty.

Is a similar result possible in the Ripple case? https://t.co/6bOl34UKpo

— Jeremy Hogan (@attorneyjeremy1) July 11, 2023

However, he emphasizes that the court must find the Fair Notice Defense insufficient for a trial and establish that past and present XRP sales qualify as investment contracts to justify injunctive relief.

If granted, the injunctive relief sought by the SEC could pose significant challenges for Ripple, as it may affect the company’s ability to sell XRP from its escrow.

Attorney Hogan suggests that while the LBRY ruling’s silence on secondary market sales may be viewed as maintaining the status quo, it fails to address the confusion within the marketplace.

As a result, Hogan believes exchanges such as Coinbase that have delisted the asset would not relist it, and those who have retained support would not delist it. This lack of clarity for LBC leaves many XRP community participants uncertain about the asset’s future.

Morgan: Judge Torres May Take Similar Steps

Attorney Bill Morgan shares similar concerns, stating that the LBRY case did not offer market guidance or clarify the classification of the LBC token as a security.

No help to the market from this decision on whether the LBC token itself is a security. The judge sidestepped the issue & didn’t entertain the major questions doctrine. The whole case achieved nothing except harm to one company & its employees. So much for clarity through courts. https://t.co/WYMWFoEmBS pic.twitter.com/dSK0WsGPDW

— bill morgan (@Belisarius2020) July 11, 2023

Attorney Morgan highlighted that Judge Barbadoro ignored the Major Questions Doctrine in the case. He worries that Judge Analisa Torres, presiding over the Ripple case, may sidestep the issue of XRP’s security status, similar to Judge Barbadoro.

Despite acknowledging a slightly higher chance of addressing the matter than Judge Barbadoro, Morgan emphasizes the potential risk that the ruling might fail to provide much-needed clarity to the market.

Attorney Deaton and Ripple CTO React

Attorney John Deaton, who represents over 75K XRP holders in the Ripple case, also shares his disappointment with Judge Barbadoro’s cautious approach in the LBRY ruling.

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

Deaton had specifically requested the judge to clarify that the LBC token itself should not be classified as a security, similar to the stance taken by Judge Castel in the Telegram case. However, Judge Barbadoro declined to address the issue, stating that it had not been litigated in the case and that he believed in exercising judicial restraint.

Deaton further notes that the judge’s decision to avoid the token classification issue is a missed opportunity, leaving significant ambiguity regarding LBC’s status.

While Deaton acknowledges that the judge’s decision does not directly apply to the secondary market, he finds it disappointing that the judge did not provide more assertive clarity. 

Despite this setback, Deaton believes that the SEC cannot argue that the ruling extends to secondary market offerings of LBC by entities not subject to the injunction.

Ripple CTO David Schwartz weighed in on the LBRY ruling, emphasizing that it can be considered a victory that the judge clarified that the ordinary use of the token does not violate the injunction. 

It’s at least a victory that it was made clear that ordinary use of the token doesn’t violate the injunction.

— David “JoelKatz” Schwartz (@JoelKatz) July 12, 2023

Deaton agreed, highlighting that even though the judge did not explicitly state that “the token itself is not the security,” he noted that his order does not apply to secondary sales. 

Deaton noted that acknowledging the legitimate use of the token for consumption invokes the Foreman precedent, which states that securities regulations do not extend to assets obtained for consumptive purposes. As a result, Deaton implies that the SEC would lack authority in such situations.

Ripple vs. SEC Case Ruling Date

Meanwhile, the XRP community and the broader crypto scene continue to wait for the final ruling from Judge Torres on the Ripple case. Previous forecasts of the date for the final ruling have not materialized. 

An XRP community influencer and YouTuber questioned if Torres was waiting for the final ruling on the LBRY case before issuing her ruling on the Ripple lawsuit. Apprehensions have ensued due to the delay.

As The Crypto Basic reported yesterday, Schwartz previously asserted that these apprehensions are misplaced. Deaton also shares similar sentiments. According to Schwartz, a ruling could come in September.