• In June, LBRY said that the outcome of its case could have a huge effect on Ripple and the entire crypto sector.

• Attorney John Deaton, the founder of Crypto Law, believes that there could be a different outcome in the Ripple case as he highlights multiple factors that could play a role.

Three months after the US Securities and Exchange Commission (SEC) filed a lawsuit against Ripple Labs for issuing unregistered securities, the Agency leveled similar accusations against peer-to-peer content distribution network, LBRY. According to the latest, Ripple Labs, the U.S. District Court for the District of New Hampshire has ruled in favor of the SEC, sending fears to the Ripple community. LBRY argued that LBC has utilities as some buyers intended to use it instead of holding it as an investment. However, this argument was dismissed by the court.

According to Federal Judge Paul Barbadoro, the claim that an unknown number of purchasers obtained it for consumptive purchases does not rule out the fact that the company was offering it as a security. 

Nothing in the case law suggests that a token with both consumptive and speculative uses cannot be sold as an investment contract…Accordingly, statements from a subset of LBC holders that they purchased LBC for use on the LBRY Blockchain is of limited relevance in determining whether LBRY offered it as a security.

In June, LBRY said that the outcome of its case could have a huge effect on Ripple and the entire crypto sector. It is expected that the SEC would take advantage of this win to make a strong case against the blockchain company. This is agreed by a pro-Ripple attorney, Jeremy Hogan, who believes that the LBRY case may find its way into the SEC’s final brief. 

The LBRY case will not affect Ripple according to attorney John Deaton

While a section of the Ripple community believes that the outcome of the LBRY case has poked a major hole in the Ripple lawsuit, attorney John Deaton, the founder of Crypto Law, believes that there could be a different outcome as he highlights multiple factors that could play a role. Having said that, Deaton mentioned that the LBRY ruling was a bad decision. 

According to him, the ruling is not the law, but only the interpretation of the law by the District Judge. In his assessment, Deaton observed that the LBRY defense team did not challenge the “second prong of the Howey test.” Secondly, they did not attempt to request the judge to differentiate between LBRY’s secondary market sales and the company’s direct sales. 

In the Ripple case, the Howey test or common enterprise was challenged which the SEC argued incoherently according to Deaton. SEC was said to have claimed that Ripple was the common enterprise. Interestingly, SEC dismissed the argument when it was found that XRP holders do not get any legal and financial interest in Ripple Labs. An expert witness was also used to testify to the claim that the entire XRP ecosystem is a common enterprise.

However, SEC was made to abandon its expert witness and go for summary judgment. This means it requested to substitute the “but for” test for the “Howey test”. 

Deaton stated:

But because XRP holders fought back and supplied 3K affidavits, refuting this alleged expert, the expert back down and testified that he might have come to an entirely different conclusion if he had known what we were declaring in those affidavits at the time he wrote his report.