The United States Securities and Exchange Commission (SEC) has requested a significant reduction in its proposed $22 million fine on cryptocurrency firm, LBRY Inc., for allegedly conducting a securities offering without registering with the agency.
The SEC is now asking a federal judge to cut the fine down to just $111,000. According to the agency, the change is based on LBRY’s ability to pay, and the maturity shown by the firm in responding to the allegations against them.
LBRY is a blockchain-based platform that is designed to enable creators to distribute their work and generate revenue without intermediaries. The company allegedly sold unregistered securities on its platform to finance its operations between 2016 and 2021.
In March 2021, the SEC filed a lawsuit against LBRY, claiming that the company violated federal securities laws by offering and selling digital asset securities without registration. The agency also alleged that LBRY failed to provide necessary disclosures to investors about the risks involved with investing in digital assets.
According to the SEC, LBRY’s sale of digital tokens, known as LBRY Credits (LBC), constituted the sale of unregistered securities. The agency claims that LBRY’s issuance of LBCs was an investment contract, and therefore it should have been registered with the SEC.
LBRY responded to the lawsuit, arguing that LBCs are not securities, and therefore the company did not violate any securities laws. LBRY also claimed that the SEC’s case violated the company’s First Amendment rights to free speech and that the agency lacked the authority to regulate cryptocurrencies.
However, in July 2021, a federal judge rejected LBRY’s argument and granted the SEC’s request for a preliminary injunction, which halted the sale of LBCs. The judge also ordered the company to produce financial records dating back to the inception of the LBC sale.
Now, the SEC is willing to reduce its proposed fine if LBRY agrees to certain conditions. The agency has requested that LBRY pay a reduced penalty of $111,000, which is just 0.5% of the original fine.
In exchange for the reduced penalty, the SEC has proposed that LBRY agree to certain conditions. The company must register the LBC tokens as securities or stop selling them altogether. LBRY must also provide public disclosures about the risks associated with investing in LBCs, and the company must hire an independent auditor to review its financial statements.
According to the SEC, LBRY has shown a willingness to comply with the proposed conditions, and the reduction in the fine is based on the company’s ability to pay. The agency has also noted that LBRY has been cooperative throughout the investigation.
The proposed settlement is still subject to approval by a federal judge. If approved, it would mark a significant shift in the SEC’s approach to regulating cryptocurrencies.
The SEC has been cracking down on cryptocurrencies in recent years, and this case involving LBRY is just one example. However, if the SEC is willing to reduce fines and work with companies to reach a resolution, it could signal a more collaborative approach to regulating cryptocurrencies in the future.
It’s unclear how this case will ultimately impact the cryptocurrency industry, but it highlights the need for companies to be aware of securities laws when conducting token sales. The SEC has made it clear that it will not tolerate unregistered securities offerings and will take action when necessary.
In conclusion, the SEC’s proposed reduction in LBRY’s fine is a significant development in the agency’s ongoing efforts to regulate cryptocurrencies. If approved, it could signal a shift towards a more collaborative approach to regulating the industry. However, companies must still adhere to securities laws when conducting token sales to avoid facing penalties and legal action from the agency.
The U.S. Securities and Exchange Commission (SEC) is seeking to revise a $22 million penalty that it earlier imposed on crypto startup LBRY, reducing it to $111,614. According to court documents submitted on Friday, the regulator cited LBRY’s “lack of funds and near-defunct status” as reasons for withdrawing its previous request for a fine.
This development follows a lawsuit by SEC against LBRY, which claimed that the company and its founders raised funds through an unregistered securities offering. The dispute has attracted attention from the wider crypto industry, as LBRY has asserted that its LBC token is not a security and that the SEC overreached its authority.
Commentators say that the outcome of this case could have implications for other crypto startups facing similar regulatory challenges. For instance, Ripple Labs has taken a similar approach in its own defense against SEC charges, as it faces accusations of illegally selling $1.3 billion in XRP tokens.
LBRY’s founder, Jeremy Kauffman, has emphasized the importance of the SEC case, and suggested that the agency’s handling of it could set a precedent for the wider industry. He has also criticized the SEC’s imposition of a $22 million penalty on his company, comparing it unfavorably to the agency’s $5 million settlement with Kik over a $100 million unregistered token sale.
The SEC’s new request for a revised penalty for LBRY also seeks to impose an “enjoinment” on the company, at least until it has executed its plan to dissolve and distribute its token holdings. LBRY has previously argued that the SEC’s proposed penalty was unjustified, and that the regulator was overstepping its mandate.
Ultimately, the outcome of the LBRY case is likely to have significant implications for the broader crypto industry and its relationship with regulatory bodies like the SEC. While some industry insiders believe that the agency’s action against LBRY could be overly harsh, others point out that the SEC’s mandate is to protect investors and prevent fraud, which it may feel LBRY has committed.
As the crypto industry matures and becomes more complex, it is increasingly likely that companies will face more regulatory scrutiny and potential enforcement action. In this context, it is important for startups to be conscious of their obligations under securities laws and to work proactively with relevant authorities to ensure compliance.
For LBRY, the outcome of its legal battle with the SEC remains uncertain. However, the firm’s case serves as a reminder that regulatory compliance is a core concern for all players in the crypto space. As such, companies and startups must take an active role in shaping the regulatory landscape and working towards a mutually beneficial regulatory framework.
