Even though the legal battle between Ripple and the U.S. Securities and Exchange Commission was not heard yesterday, Ripple, XRP, and the entire crypto industry won an important partial victory in its fight against the SEC’s overreaching regulation by enforcement, thanks to attorney John E. Deaton.
In yesterday’s appeal hearing, the SEC sought an affirmation from the New Hampshire district court judge issuing a broad, vague injunction against the sale of the LBRY token, in which the token itself becomes a security, bringing secondary market sales under the SEC’s jurisdiction.
This could not only be disastrous for XRP sales on the secondary market but for all cryptocurrencies, except Bitcoin, which has already been declared a non-security by the SEC. In a recent video for Crypto Law TV, Deaton – who is also representing 75,000 XRP holders in the SEC vs. Ripple case – covered what happened in the courtroom.
“We all know that the SEC likes to have maximum law enforcement capabilities available. That’s why we got involved,” he said, further reporting that the judge did a great thing. “He basically looked over to the SEC and said, you agree with him […] Everybody was imagining that … Do you agree with Deaton?”
This showed that the judge was willing to put his November 07, 2022, ruling into proper perspective. At that time, he granted summary judgment in favor of the U.S. Securities and Exchange Commission and classified every sale of the LBC token over a six-year period as an investment contract without detailing the nature of the transactions.
This opened a door for the SEC to move closer to its goal of getting legitimacy through ruling to get the legitimacy of regulatory oversight of the secondary market as well. Yesterday, however, the judge made it clear that the ruling was being misinterpreted by the SEC.
Related Reading: Ripple Hits New UNL Decentralization Milestone, Here Are The Participants
The judge said that the SEC needs to commit to something and described two examples. The judge explained one example in which LBRY sold its LBC token to an investment club that held it in cold storage – a direct sale. The judge said that he considers this to be an offering of an unregistered security and the SEC agreed.
The second example he gave was of the secondary market. Deaton reported:
And then the judge said but if Flipside sells it to someone else on the secondary market, independent of LBRY, you have to agree that my order does not apply to this scenario. And that’s the victory that we got. The SEC had to concede it on the record, in real time.
Remarkably, the judge turned to Deaton afterward and told him: “amicus, I’m going to make it clear that my order does not apply to secondary market sales.”
This Is Why The Victory Is Crucial For Ripple And XRP
The judge committed that he would make clear in the final remedy that he is not ruling on the secondary market. The SEC has openly admitted in court that it does not consider secondary sales to be securities. This is a huge partial victory for the entire crypto industry, but also Ripple, as Deaton further commented:
This hearing today if you think we are getting regulations by congress soon, then the ruling is irrelevant because congress will give us clarity. If we’re not going to get any clarity from congress, there’s not going to be some regulation that says something that defines a security, […] then this hearing was extremely important.
LBRY Hearing: The Stakes for ALL Crypto https://t.co/YPbrBkw0Od
— CryptoLaw (@CryptoLawUS) January 30, 2023
At press time, the XRP price stood at $0.3955, down 3.8% in the last 24 hours. With this, XRP is following the general sentiment in what is likely to be a risk-off move ahead of tomorrow’s FOMC meeting.
Featured image from Gr Stocks / Unsplash, Chart from TradingView.com