Following an SEC complaint, a New Hampshire court has ruled that decentralized content distribution platform LBRY offered its LBC token as a security.
The court struck down LBRY’s claim that its tokens were not securities and that it was not given sufficient time to register the token.
SEC vs. LBRY case background
The ruling follows a complaint by the U.S. Securities and Exchange Commission in 2021 that LBRY received more than $11 million from selling unregistered securities and hence violated Sections 5(a) and 5(c) of the Securities Act of 1933.
LBRY is a blockchain that hosts “slices” of user-generated content on hosts. Content publishers can charge viewers for their content, accessible through unique identifiers similar to the Ethereum Name Service. Upon payment, the viewer will receive access to a decryption key that allows them to view the content. The viewer’s LBRY client will assemble the content from the hosts and present it to the viewer. The LBRY blockchain keeps track of balances of the LBC token.
LBRY launched its platform in June 2016. Soon, the market capitalization of its LBC token swelled from $140 million to $1.2 billion in one month. LBRY originally designed LBC to have a maximum circulating supply of 1 billion tokens. It initially reserved 400 million of its LBC tokens for itself. It also earmarked 100 million LBC for donations to non-profits and non-government organizations and allocated a further $100 million to cover operating expenses.
LBRY sold over 9.8 million LBC tokens directly to the public. It sold a further 44.1 million LBC through different exchanges and marketed them as investments that would grow over time. LBRY said that the token’s appreciation would improve as it built out the LBRY network, inserting various disclaimers into its marketing material.
The court ruled that, despite these disclaimers, LBRY was fully aware of the potential of its token as an investment vehicle and failed to provide investors with adequate disclosure.
Will court ruling jeopardize crypto’s future in the U.S
Some in the crypto community, however, are concerned that the ruling could threaten the crypto industry’s future.
Crypto influencer BitBoy said that the case’s outcome is bad for altcoins and initial coin offerings (ICOs). Crypto companies use ICOs to sell tokens to raise funds for a new venture. The tokens normally grant the holder some stake or utility related to the project.
BitBoy added that this case is unlikely to affect the SEC vs. Ripple Labs debacle over whether the firm’s XRP asset is a security and that Ripple Labs is likely to win. The SEC issued a complaint in 2020 that Ripple Labs and two executives pocketed handsomely from the sale of XRP. These are assets that it claimed were securities.
In the case’s latest developments, Ripple Labs’ chances of winning improved after several parties, including Coinbase and Senator Cynthia Lummis (R-Wyo), filed amicus curiae briefs to be considered part of the case.
Though, the LBC token price has now fallen from $0.019 to $0.013, as per data from Coingecko and TradingView.