The Securities and Exchange Commission (SEC) on Friday asked a court to reduce a $22 million penalty levied against LBRY, recognizing that the decentralized publishing platform may not be able to afford its multi-million dollar punishment. The financial watchdog is now asking a court to impose a lower penalty of $111,614, while also dismissing a separate requirement to forfeit another $22 million in ill-gotten gains.
The SEC based the move on its understanding that LBRY is “defunct, ceasing operations, and without the funds to pay a larger fine,” according to court documents.
The agency originally sought $22 million to be paid back in addition to the $22 million civil penalty. In a written statement, LBRY CEO Jeremy Kauffman told Decrypt the agency's decision was far from an act of goodwill.
“The SEC's decision to no longer seek disgorgement should not be read as a change-of-heart, but pure self-interest,” he said. “The SEC thought they would lose and wanted to avoid a bad precedent. However, it is a positive sign for LBRY that this all may finally be over soon.”
Kauffman added that Odysee, a subsidiary of LBRY, still has a bright future. Yet, Kauffman claimed the blockchain-based media platform remains threatened by the SEC, along with all other blockchain firms, describing the agency's actions as “arbitrary and hostile.”
The SEC won its case against LBRY last November. The company was charged with selling unregistered securities in March 2021, as the SEC claimed LBRY’s LBC tokens were sold as investment contracts and unregistered securities.
The agency argued that LBC tokens were sold before LBRY’s network was fully developed to raise capital and pay for operational costs. From July 2016 to February 2021, LBRY received $12.2 million in proceeds, composed of cash and crypto, from the sale of LBC, the SEC alleged.
The decentralized publishing platform allowed people to view uploaded content by paying with LBC tokens, which still trade on cryptocurrency exchanges like CoinEx and Hotbit, according to CoinGecko. The token’s value is down more than 99% from its all-time high of $1.60 in 2016.
Though the SEC believes its multi-million dollar penalty is no longer warranted, the regulator urged the court on Friday to still enjoin LBRY, preventing the firm from selling unregistered securities in the future.
The SEC said that LBRY offered unregistered securities for more than five years, that LBRY has not acknowledged its behavior was illegal, and that LBRY has to capacity to still sell LBC tokens today—whether that’s directly or through Odysee.
LBRY said last December that Odysee is independently-run and that the two are distinct entities, according to court documents. It claimed that Odysee has never been engaged in the sale of LBC tokens.
The SEC also said that LBRY has yet to fully dissolve itself or burn its holdings of LBC—removing the tokens from circulation permanently. LBRY should face pressure until those two actions happen, the SEC argued.
While many of the SEC’s enforcement actions end in settlements that are reached before their respective cases work their way through court, the legal fight between LIBRY and the SEC could have a longstanding impact on the crypto industry, LBRY said on Twitter in November.
“The language used here sets an extraordinarily dangerous precedent,” the firm said, linking to its case’s ruling and claiming it could make “every cryptocurrency in the US a security, including Ethereum.”
The full ruling in the SEC vs LBRY case can be read here.
The language used here sets an extraordinarily dangerous precedent that makes every cryptocurrency in the US a security, including Ethereum. https://t.co/plLZuzBRpO
— LBRY 🚀 (@LBRYcom) November 7, 2022
Kauffman separately warned of the verdict’s potential impact on crypto before a ruling was reached. He also made comments about the SEC’s regulatory approach toward digital assets before it became a hot-button issue on Capitol Hill.
“The facts in this case would basically apply to every company in this room,” he said at Messari Mainnet last year. “The SEC has very much demonstrated that they are out to damage or destroy the cryptocurrency industry in the United States.”