Court finds that LBRY offered LBC as a security and that the Fair Notice Defense fails

[Danny]

 

Edited November 7, 2022 by Danny

[QuestionMark]

LMFAO, why am I not surprised

[Frisia]

Well the LBRY case was obviously a pure ICO if I remember well and therefore quite different. The interesting question that pops up is whether or not the ICO did include a written contract or if it was purely a public offering. Institutional investors were not able to sell the tokens for one year...

[Babelly]

its from my understanding and from what I can gather, the judge ruled that the sale of LBRY tokens were used to fund the development of the LBRY networks, therefore it was sold as a security.

The XRPL was fully functional and built out before any sales of XRP occurred.  No XRP sales went into building the XRPL.  2 totally different cases

[Guest]

47 minutes ago, QuestionMark said:

LMFAO, why am I not surprised

The surprise is for everyone else in the industry. This is a big problem for everyone who operates in the U.S. The judge said "because the foundation held a lot of tokens, they are signaling that they are incentivized to make the tokens more valuable in the future."

That said, I don't see anything about secondary sales of the LBRY token. Just that LBRY would need to register its sales. Would be interested to see how that pans out. 

The problem we have had with crypto enforcement and the chatter around the SEC is politicization of the issue.

That said, the original state doesn't change. Ripple has the best chance at winning, because at the time XRPL was fully functional, XRP token price hasn't followed Ripple's efforts, XRPL has no rewards, Ripple hasn't controlled the network for a while. And it has a stronger argument for FND. Of course Ripple's problem is the amount of XRP tokens it holds. 

If Ripple wins, it still doesn't guarantee that the rest of crypto is safe. If Ripple loses, rest of crypto is screwed. Every token/project that had "rewards" associated with it is screwed. Which is pretty much every chain out there, with the exception of a few like XLM (and probably HBAR? I don't know for sure). 

 

[QuestionMark]

9 minutes ago, Ripley said:

The surprise is for everyone else in the industry. This is a big problem for everyone who operates in the U.S. The judge said "because the foundation held a lot of tokens, they are signaling that they are incentivized to make the tokens more valuable in the future."

That said, I don't see anything about secondary sales of the LBRY token. Just that LBRY would need to register its sales. Would be interested to see how that pans out. 

The problem we have had with crypto enforcement and the chatter around the SEC is politicization of the issue.

That said, the original state doesn't change. Ripple has the best chance at winning, because at the time XRPL was fully functional, XRP token price hasn't followed Ripple's efforts, XRPL has no rewards, Ripple hasn't controlled the network for a while. And it has a stronger argument for FND. Of course Ripple's problem is the amount of XRP tokens it holds. 

If Ripple wins, it still doesn't guarantee that the rest of crypto is safe. If Ripple loses, rest of crypto is screwed. Every token/project that had "rewards" associated with it is screwed. Which is pretty much every chain out there, with the exception of a few like XLM (and probably HBAR? I don't know for sure). 

 

SEC was quite clear in their statements that they are going after crypto, and it would seem that despite appearances they are not a bunch of complete idiots, hence the no surprise that they know what they are doing and as a result can actually win a case they bring on. All the rest aside, that first statement by the judge can be said about pretty much any and all crypto projects and if this is any indication of how things are going to go from here on out in SEC vs crypto we are in for a thoroughly entertaining couple of years.

However one tries to rationalise and sugar coat this it is a major kick in the nuts for Ripple and crypto at large. Let's hope 100 million plus in legal fees, certain technicalities and letters of general support will do the the trick here.

[Guest]

4 minutes ago, QuestionMark said:

SEC was quite clear in their statements that they are going after crypto, and it would seem that despite appearances they are not a bunch of complete idiots, hence the no surprise that they know what they are doing and as a result can actually win a case they bring on. All the rest aside, that first statement by the judge can be said about pretty much any and all crypto projects and if this is any indication of how things are going to go from here on out in SEC vs crypto we are in for a thoroughly entertaining couple of years.

However one tries to rationalise and sugar coat this it is a major kick in the nuts for Ripple and crypto at large. Let's hope 100 million plus in legal fees, certain technicalities and letters of general support will do the the trick here.

The politicization of this issue meant that everything SEC did was evil and corrupt, and if you didn't agree with them, you were against crypto or biased. If you got cheated or rug pulled - circumstances where the SEC/Justice Department/CFTC did go after people, it was your fault for getting rug pulled. Two commissioners were corrupt so all of SEC were corrupt (even though the same SEC had people like Hester Pierce).

The saddest thing for me is that post Hinman speech, everyone assumed that as the paved road to regulatory clearance in the U.S. and now they are all screwed because the SEC backed away from it and now we have a ruling that says screw you (unless Ripple wins in Second Circuit on FND because that is binding). Ripple knew it didn't have clarity and were likely prepared. The rest of the industry assumed that they had clarity, when they didn't.

The $100M in legal fees gets Ripple the Blue Sky laws argument and access to Hinman's e-mail drafts. It gets SEC "experts" dismissed. It gets sworn affidavits from principals around how SEC commissioners assured them that XRP wasn't viewed as as security. Plus there are genuinely some unique circumstances with XRPL and Ripple that don't exist for others given the economic/market situation at the time XRPL was launched. 

That said, Crypto is here to stay. The U.S. is not going to be left behind. I'm not worried about the overall future. 

[Gringo]

Quote

SEC was quite clear in their statements that they are going after crypto, and it would seem that despite appearances they are not a bunch of complete idiots, hence the no surprise that they know what they are doing and as a result can actually win a case they bring on.

Well both the "SEC" and the "Judge" belong to the same state. The illusion that when the state goes to a court (belonging to the same state) and a fair service of "justice" is being provided is just that: an illusion.

[Alluvial]

From the court's analysis, it seems like our fair notice defense is a long shot.  The Upton case (at least how the LBRY court describes it), was a situation where a brokerage firm complied with the SEC rule as written.  Later, the SEC issued guidance saying that its interpretation of the rule changed.  The brokerage firm's conduct complied with the rule, but not the SEC's new interpretation of it.  The brokerage firm's violative conduct ended before the SEC's new interpretation was issued.  The SEC then sued the brokerage firm for the pre-guidance violative conduct   The Second Circuit said the brokerage firm did not have fair notice of the new interpretation of the rule.  That seems to be a different circumstance that we have in the Ripple case, and for the reasons the judge explained in the LBRY decision.

After the LBRY decision, I feel that Ripple will lose on the fair notice defense at summary judgment.  Ripple is arguing that the fair notice defense should go to the jury for determination, but I don't think it will, unfortunately.

Regarding whether xrp is a security, we may have a few additional arguments (over those of LBRY's).  It seems like Ripple submitted numerous other arguments that were not raised by LBRY.  LBRY did raise the consumptive use angle as did Ripple.  But this argument about consumptive use may also be a long shot given the LBRY court's analysis.  The LBRY court stated that even if there were some consumptive use cases and an actual consumptive use for the digital token, if the primary use was as an investment then it can be a security.  My understanding is that if there is significant consumptive use of the digital token, it can't qualify as a security.  Hopefully, with the amici briefs and the 3000 affidavits submitted by Deaton, we can at least get the consumptive use issue to the jury.  Given the nature of the Ripple case in general, I feel that a jury would side with Ripple on a lot of issues.  The Ripple legal team just needs to get it there.

Hopefully, Ripple will be able to convince the court that xrp is not a security, or that some of the issues relating to the issue are questions of fact for the jury.

What I am really hoping for is that the Ripple court will address whether secondary market transactions in xrp constitute securities transactions.  The problem is that the court is under no obligation to address the issue as the issue is technically not before the court.  That was the reason Deaton tried to get us as defendants in the case originally - because we want that issue addressed by the court so that we're not left in limbo.  I feel that if the court were to clarify that the secondary market transactions are not securities transactions, then xrp can be used by banks, traded on exchanges, ODL and all the other benefits, without these entities having to worry about whether those transactions are securities transactions.  If it's not clear, they won't use it.  The SEC's refusal to confirm that those secondary market transactions are not securities transactions is really hurting investors and putting a big unnecessary roadblock in the way of a blooming technology.  It's really outrageous, especially because it is being done to put more pressure on Ripple, without any concern for the millions of xrp holders in the US.  If the court notes that xrp itself is not a security or that secondary market transactions do not have to be registered (and they shouldn't have to be registered), then the price of xrp may go up dramatically (we hope) even if Ripple's subsequent sales of xrp must be registered.

[HAL1000]

The Serious Ethin Criminals won a battle, but the war is still on. These criminals at the SEC especially GG need to understand that the rest of the world, is not America and if he and his criminal friends want to go down this path, then it will only place America in a place of isolation, whilst the rest of the world benefits from this new tech.

Congress FIX THE SEC or eventually suffer the consequences of your own short sightedness.

[VanHasen]

@Alluvial no chance torres grants ripples motion for SJ? 

[Gringo]

 

[HAL1000]

Well a couple of things, this means as of now, the only crypto in the USA that we know the SEC won't touch is buttcoin and as it lifts all boats in general, then I can see a lot of money flowing out of some ALT's back into BTC.

The bad news is, there is currently a lot chatter about a major amount of BTC about to be dumped on the market, which could bring the market crashing down a bit.

But the if the Reps win the mid terms tomorrow, then GG and the SEC maybe facing some major changes, we will see.

[Alluvial]

1 hour ago, VanHasen said:

@Alluvial no chance torres grants ripples motion for SJ? 

No, it is possible that we win on SJ.  Ripple has presented some unique arguments that were not raised in the LBRY case, and our circumstances are somewhat different from LBRY's.  I think we have a shot at SJ, but I feel the fair notice defense will be stricken at SJ based on the analysis of the LBRY court (Ripple is arguing that whether fair notice occurred is for the jury to decide).  But I could be wrong and I hope I am.  I think if the court does not rule in Ripple's favor at SJ (about whether the sales of xrp were securities transactions), hopefully it will claim that there are issues of fact relating to that determination that need to be resolved by a jury.  I think Ripple's witnesses and experts will play much better to a jury than those of the SEC.  

[Guest]

16 minutes ago, HAL1000 said:

Well a couple of things, this means as of now, the only crypto in the USA that we know the SEC won't touch is buttcoin and as it lifts all boats in general, then I can see a lot of money flowing out of some ALT's back into BTC.

The bad news is, there is currently a lot chatter about a major amount of BTC about to be dumped on the market, which could bring the market crashing down a bit.

But the if the Reps win the mid terms tomorrow, then GG and the SEC maybe facing some major changes, we will see.

I don't expect Gensler to be asked to leave unless the Presidency changes, which is at least 2 years away. However a good majority (either way) will help move crypto legislation forward. It doesn't matter who wins. What is needed is a clear majority.