Can Ripple (XRP) Lose Against the SEC? Lawyers Debate Following LBRY Lawsuit Judgment

LBRY Inc – the firm that’s responsible for developing the LBRY Protocol – announced that it will be closing shop. This comes after it received a final judgment in the case against the US Securities and Exchange Commission (SEC) earlier this week.

LBRY lost the case. The judge sided with the Commission and ruled that the company violated Section 5 of the Securities Act of 1933 when issuing the token.

Now, lawyers are debating whether Ripple could share similar faith as the company is also amidst a massive clash with the SEC over whether or not it facilitated the sale of unregistered securities when issuing its XRP token.

The Case in Point

Earlier this week, LBRY Inc confirmed that it will be winding down its operations after it lost the case against the Securities and Exchange Commission.

The court ruled that the company violated Section 5 of the Securities Act of 1933 in its issuance of the platform’s native cryptocurrency. Some lawyers, however, believe that the firm’s legal counsel missed an opportunity.

Commenting on the matter was Bill Hughes, a lawyer at Consensus, who said:

Oooof LBRY might be thinking it missed a real important argument. Don’t be too rough with your counsel for missing this opportunity. It’s fashionable now but wasn’t so at the time. Plus, not having the time and space to give the issue the proper treatment might have turned out real bad for everyone with the judge finding the other way (which seems like a real possibility given the other merit findings.)

The comment refers to a note from the Judge presiding over the case between LBRY and the SEC, which said:

LBRY also made a cursory argument – presented for the first time in its supplemental brief in support of the motion to limit remedies – that the “major question doctrine” forecloses the SEC’s efforts to regulate digital assets. […] This eleventh-hour argument has been forfeited. […] Indeed, an argument challenging SEC’s authority to bring this enforcement action should have been raised earlier in the case, especially since the cited Supreme Court case was decided before I held oral argument on the cross-motions for summary judgment.

How Does This Relate to Ripple’s Case?

Another lawyer – Bill Morgan – brought the question to Twitter, asking why can’t Ripple raise the Major Questions Doctrine (MQD) before Judge Analisa Torres (the Judge in the case between the SEC and Ripple) makes her decision.

Given what the judge said in footnote 2, and I know he had oral hearings on the SJ motion in theSEC v LBRY as he says in the footnote and judge Torres didn’t, but why can’t Ripple raise the Major Questions Doctrine before judge Torres decides.

— bill morgan (@Belisarius2020) July 12, 2023

Opposing any applicability of the MQD to SEC enforcement actions was Marc Fagel – a form SEC veteran, who said:

They are not promulgating rules beyond their authority, they are charging violations of existing law, and the court can determine whether or not the law was violated.

Well-known XRP holders attorney John Deaton also took part in the discussion, arguing that there’s “no existing law in determining the secondary sales of an asset previously utilized in an investment contract, transaction or scheme, also constitutes an investment contract.” He said that this makes it at least arguably that the MQD does apply to secondary market asset sales such as those on Coinbase.

Fagel maintained his position:

And I disagree. The SEC plainly has the authority to enforce the securities laws; if it can’t prove the law was broken, then it lsoes the case. The MQD is irrelevant and inapplicabe.