The United States Securities and Exchange Commission has been keeping a close watch on the cryptocurrency industry and blockchain start-up LBRY Inc. is now in the regulator’s crosshair. The SEC alleged that the New Hampshire-based company conducted unregistered sales of its native token, which it considers security. Now, the blockchain company has fired back stating that based on SEC’s allegations, most tokens would be defined as securities.
The question of whether some cryptocurrencies can be considered securities or not is long unanswered. As such, the SEC has been targeting crypto companies without any proper justification as to why it considers a particular token as a security.
On a similar note, the SEC’s complaint states that LBRY Inc. conducted an illegal securities offering of its native token across multiple avenues including institutional investors and platform users between 2016 and 2020.
The regulator is seeking a permanent injunction that prevents the firm from selling more of the said tokens. Besides this, the SEC also wants disgorgement of all funds received with interest, and an undisclosed amount in civil penalties.
LBRY operates a decentralized video sharing platform called Odysee which allows users to “earn cryptocurrency for watching videos”, while content creators get rewarded for their work with LBRY credits. Since 2016, the firm sold 13 million LBC tokens for $5 million in Bitcoin. A press release from the SEC, however, notes that the firm raised $11 million, including USD and services from purchasers who participated in the sales.
LBRY states that it did not conduct any initial coin offering (ICO) and the SEC is not alleging fraud. It added that its attempt to settle with the commission was also rejected.
“The SEC declined to offer any terms that would have made it viable for U.S. citizens to exchange tokens or to allow LBRY Inc to continue to operate. We were willing to give them a pound of flesh, but they were only interested in our head.”
The company reportedly spent “more than $1 million on legal fees” and “several thousand hours of team members’ time” during the investigation. As such, the company says its not backing down, stating: “The SEC is advancing an aggressive and disastrous new standard that would make almost all blockchain tokens securities.”
“Classifying all actively-developed blockchain tokens as securities will be a bureaucratic nightmare for United States residents and businesses operating in the US.”
A petition to save Crypto
The firm also has a petition requesting “the SEC to drop this case and establish clear standards for the cryptocurrency industry in the United States” with more than 6,700 signatures on its website “helplbrysavecrypto.com”.
LBRY also adds that when it asked the SEC regarding how it would be able to operate legally in the nation, it was told that the SEC will not be able to advise the firm on that and could only point out that it had broken the law.
The company further adds that the LBRY platform and ecosystem will remain unaffected even if the SEC succeeds in shutting down LBRY, Inc.