Is crypto in danger after LBRY’s SEC defeat?
The crypto company behind a peer-to-peer digital marketplace, LBRY, lost its legal battle against the US Securities and Exchange Commission (SEC). The regulator filed a lawsuit against the crypto platform over the alleged illegal sale of an unregistered security, its original token LBRY Credits (LBC).
The team behind LBRY shared the news with their followers via social media and apologized for the outcome. Many considered this case, along with the Ripple versus SEC battle, to be one of the most important legal actions for the crypto industry.
Everything but Bitcoin, LBRY case could shape crypto regulations
According to the court’s decision, LBRY’s legal representation failed to offer “a reasonable showing of fact” or sufficient evidence to refute the SEC’s allegations. In addition, the judge ruled that the SEC gave the crypto company fair notice of the classification of the token LBC.
Bitcoinist reported that the LBRY versus SEC cases began in 2021, a few months after the Ripple lawsuit. The crypto company claimed that its original token, LBC, was created for utility, not financial purposes.
In that sense, they claimed, it never worked as a security. However, the judge disagreed, claiming that “some unknown number of buyers” bought the token to make a profit. Thus, LBC operated as a security. In that sense, the team behind LBRY said:
We’re going to lick our wounds for a little while, but we’re not giving up. We have a great team, tens of millions of pieces of content, hundreds of thousands of creators and one of the most popular web3 apps in the world. The best is yet to come.
Consequences for the crypto industry?
In the crypto community, the decision is considered a bad outcome for US cryptocurrency law. Many believe the case will set a bad precedent for the nascent industry in the country, making it difficult for other projects to launch their tokens. Others believe the court’s decision will have no impact on the regulations.
Legal expert Gabriel Shapiro, General Counsel at Delphi Labs, so:
It’s dicta, but here the LBRY judge reasons that even if the team is completely silent about efforts – no promises, no contracts – but premining tokens, that alone creates a sufficient expectation of profit from their efforts in joint enterprise to pass the Howey test very bad result.
Shapiro believes there are no grounds for appealing the decision. Nevertheless, the outcome will be challenged by the emerging industry. On the other hand, lawyer Lewis Cohen so:
I certainly understand the concern, but I am less pessimistic. The LBRY court provided no meaningful jurisprudential analysis to reach its conclusion that the LBRY tokens are securities. The decision cited only one case, Warfield v. Alaniz, 569 F.3d 1015 (2009), as authority.
