- The SEC has reduced the amount it is seeking from LBRY by 99.5% because the project is on the verge of collapse
- LBRY was initially expected to pay $22 million for falling foul of the SEC’s securities laws
- The agency has agreed the vastly smaller sum because it has no chance of collecting the initial sum
The Securities and Exchange Commission (SEC) has reduced the amount it is seeking from LBRY as punishment for transgressing securities laws by 99.5% because the project is on the verge of collapse. LBRY chose to fight the SEC rather than agreeing a settlement over accusations that its LBC tokens were securities, but it lost in November. The SEC’s $22 million fine more or less signaled the end of the project, and the agency has revised its desired collection amount down to something more reasonable, but no less terminal.
LBRY Defunct After Choosing to Fight
In its March 2021 complaint, the SEC alleged that LBRY had “offered and sold millions of dollars’ worth of unregistered securities to investors” through its LBC token system, with LBRY arguing that the proceeds were intended to be used to “fund its business and build its project.” However, the SEC claimed that LBC tokens were “offered and sold as investment contracts and, therefore, securities,” with LBC token buyers expecting “a return on their investment based on the entrepreneurial or managerial efforts of LBRY.”
The courts agreed with the SEC in November and LBRY lost the case, with the judge imposing the SEC’s demand of $22 million in penalties and costs, which essentially signaled LBRY’s death knell. LBRY claimed the SEC’s of the sum was “based on rough, back-of-the-envelope math” and the amount it sought was “simply not supported by the record.”
SEC Sees $111,000 as Better Than Nothing
LBRY has belatedly got its wish for a reduced fine, but only because the court action has all but killed it off. In a filing made last week, the SEC noted that LBRY was in a financial position so perilous that it was unlikely to get back what it had been awarded:
The Commission acknowledges LBRY’s representations that it is defunct, ceasing operations, and without the funds to pay a larger fine, and recognizes that a defendant’s ability to pay is a factor when imposing a civil penalty.
The SEC added the smaller penalty was a compromise between “the need to balance the deterrence from a penalty with LBRY’s inability to pay,” which suggests that crypto projects will be deterred from selling securities when the truth is no one knows which coins are and which aren’t in the first place.
