US judge rules secondary sales of LBRY’s native token are not securities

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Investors who traded LBC tokens on secondary markets didn’t violate securities laws, a U.S. judge has ruled in a blow to the Securities and Exchange Commission (SEC)’s enforcement effort.

The SEC was embroiled in a legal battle with LBRY Inc., a decentralized publishing platform, over whether the platform violated securities laws by selling its native LBC tokens. In November, U.S. District Judge Paul Barbadoro ruled that LBRY offered its tokens as securities without registering them first.

However, the two entities were back in court again, this time in a battle over whether the sale of LBC tokens in the secondary market constituted securities violations. The SEC argued that the November ruling encompassed all LBC sales, with LBRY and LBC investors fighting back against the regulator.

As digital assets lawyer John Deaton recently revealed, Judge Barbadoro sided with the investors, ruling that secondary sales of LBC tokens were not securities transactions.

LBRY Hearing: The Stakes for ALL Crypto https://t.co/YPbrBkw0Od

— CryptoLaw (@CryptoLawUS) January 30, 2023

Deaton revealed that the verdict came down to whether an underlying asset in any securities violation lawsuit is considered a security. While oranges or cattle can be used as an underlying asset in an unregistered securities offering, the oranges aren’t a security. Similarly, the judge ruled that the LBC tokens weren’t security themselves and secondary sales aren’t illegal.

Judge Barbadoro clarified that he would not issue an injunction to LBC traders on the secondary market.

While secondary sales may be exempted, LBRY was forced to shut down for violating securities laws. Its blockchain platform for publishers to host decentralized content will, however, live on.

The XRP community is hopeful that the ruling will have some spillover effect on Ripple’s legal battle with the SEC. However, even if secondary sales were to be exempted (although it’s unlikely this case will be a deciding factor as a precedent in the Ripple case), Ripple would still be found guilty of securities violation, just like the now-defunct LBRY was.

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