Is Crypto In Danger After LBRY’s Defeat Against The SEC?

The crypto company behind a peer-to-peer digital marketplace, LBRY, lost its legal battle against the U.S. Securities and Exchange Commission (SEC). The regulator filed a lawsuit against the crypto platform over the alleged illegal sales of an unregistered security, its native token LBRY Credits (LBC). 

The team behind LBRY shared the news with its followers via social media regretting the outcome. Many considered this case, along with the Ripple versus SEC battle, one of the most important legal actions for the crypto industry. 

Everything But Bitcoin, LBRY Case Might Shape Crypto Regulations

According to the court’s decision, LBRY’s legal representation failed to offer “a reasonable trier of fact” or sufficient proof to reject the SEC’s accusations. In addition, the judge determined that the SEC gave the crypto company fair notice about the classification of its token LBC. 

Bitcoinist reported that the LBRY versus SEC cases began in 2021, a few months after the Ripple lawsuit. The crypto company argued that its native token, LBC, was created for utility, not financial purposes. 

In that sense, they claimed that it never operated as a security. However, the judge disagreed, arguing that “some unknown number of purchases” bought the token to obtain profits. Thus, LBC operated as a security. In that sense, the team behind LBRY said: 

We’re going to lick our wounds for a little bit but we’re not giving up. We’ve got a bright 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.

In the crypto community, the decision is considered a bad outcome for U.S. law regarding cryptocurrency. Many believe the case will set a poor 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 regulations. 

Legal expert Gabriel Shapiro, General Counsel at Delphi Labs, said: 

It’s dicta, but here the LBRY judge reasons that even if team is completely silent about efforts–no promises, no contracts–but premines tokens, that alone creates a sufficient expectation of profits from their efforts in common 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 nascent industry. On the other hand, lawyer Lewis Cohen said: 

I definitely understand the concern, but I’m less pessimistic. The LBRY court provided no meaningful jurisprudential analysis to reach their conclusion that LBRY tokens are securities. The decision cited just one case, Warfield v. Alaniz, 569 F.3d 1015 (2009), as authority.

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