LBRY Loses Securities Case Against SEC

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LBRY has lost its case against the SEC over the status of its LBC token

The judge ruled that LBC credits counted as securities after the 18 month battle

LBRY has warned that no blockchain is safe and that it is no clearer to understanding what it could have done to comply

Decentralized media platform LBRY has lost its legal battle with the Securities and Exchange Commission (SEC) over whether its LBC token should be classed as a security, in a move that LBRY called “an extraordinarily dangerous precedent”. Judge Paul Barbadoro ruled yesterday that LBC tokens did count as securities, leaving LBRY facing a hefty fine in addition to the legal fees accrued in fighting the case. LBRY naturally criticized the ruling, noting afterwards that it is no closer to identifying how to correctly launch a blockchain in the U.S.

LBC Buyers “Expected a Return” Says Judge

The SEC launched legal proceedings against LBRY in March last year, claiming that in 2016 LBRY “offered and sold millions of dollars’ worth of unregistered securities to investors” through its LBC token system, claiming that they were “offered and sold as investment contracts and, therefore, securities”. The SEC added that LBC token buyers “expected a return on their investment based on the entrepreneurial or managerial efforts of LBRY.”

In its defense, LBRY said that the proceeds would be used to “fund its business and build its project” and added that it was not given “fair notice” that it needed to register its offerings with the SEC. However, judge Barbadoro found that “the SEC is correct that potential investors would understand that LBRY was pitching a speculative value proposition for its digital token” and also dismissed LBRY’s claims that it wasn’t given fair warning over its need to register its token sale:

While this may be the first time it has been used against an issuer of digital tokens that did not conduct an ICO, LBRY is in no position to claim that it did not receive fair notice that its conduct was unlawful.

LBRY Decries “Extraordinarily Dangerous Precedent”

The response from the LBRY community, and the wider crypto community, was immediately negative. LBRY warned that, “The language used here sets an extraordinarily dangerous precedent that makes every cryptocurrency in the US a security, including Ethereum”, while John Deaton, the man heading up the class action lawsuit on behalf of XRP holders against the SEC also decried the decision:

The @LBRYcom decision is a very bad decision (it’s why I’ve been talking about this case for the last year) and it is true that if the reasoning utilized by the judge was the law in the United States it would serve a death blow. But it is NOT the law. https://t.co/dUfrooW6yp

— John E Deaton (220K Followers Beware Imposters) (@JohnEDeaton1) November 7, 2022

Deaton’s tweet came in response to one by Nick Almond, protocol leader at FactoryDAO, who also professed his fear for all blockchain projects in the U.S.:

This is bad news. Even the weak signal of “we have some tokens too” is enough to be considered a security apparently.

Americans are gonna have a hard time using anything with a token in the future. https://t.co/2naHj92dis

— drnick (anti-crypto arc) ² (@DrNickA) November 7, 2022

This victory for the SEC adds another notch to its bedpost of crypto projects it has f*****d, which started with its victory over the KIK ecosystem in October 2020, a victory which was supposed to lay down the rules for crypto projects but didn’t.

The post LBRY Loses Securities Case Against SEC appeared first on FullyCrypto.

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