It seems that the words of the 1946 Supreme Court ruling, the Howey Test, still linger when it comes to the crypto industry. Regulatory measures are afoot and the recent case involving the U.S. Securities and Exchange Commission (SEC) against blockchain development company LBRY, is proof of the punitive power of such measures.
LBRY Fined $22M by SEC for Selling Unregistered Securities
In March 2021, the SEC filed a civil suit against LBRY for the sale of its unregistered securities, LBRY Credits (LBC). This led to a successful case being won in November 2022, whereby the judge ruled that the LBC token qualifies as a security. Implying just one of the powers the SEC holds, the U.S. governmental body demanded $22 million in fines from LBRY.
However, in a May 12 filing in a New Hampshire District Court, the SEC sought to amend its request for remedies, citing the company’s “lack of funds and near-defunct status”, reducing the penalty to $111,614. Despite this much lower amount due to LBRY’s fragile financial situation, the SEC also requested that the court order LBRY to cease any further unregistered offerings of crypto asset securities.
Importance of Stronger Regulation in the Crypto Markets
For SEC Chair Gary Gensler, the case against LBRY clearly highlighted the need for tighter regulation in the crypto markets, demonstrating the power the agency holds when it comes to protecting consumers investing in cryptocurrencies.
Incoming cases such as Ripple’s allegations of selling XRP tokens as unregistered securities and Odyssey-affiliated electronic platform, Odyseey‘s ‘unregistered security’ case, have served to further extend the regulatory arm of the SEC.
SEC’s Heavy Fine on LBRY Raises Concerns for Blockchain-based Projects
The SEC’s recognition of the potential for unregistered security offerings has come at a cost to blockchain-based projects though. The hefty $22 million fine initially ordered against LBRY has left them struggling financially, with the company later claiming they will likely be “dead in the near future.”
The hefty penalty, or what some are calling “billionaire justice”, serves to disincentivize similar projects from even attempting to develop such products in the future and could sway the industry-wide view of blockchain-based products.
Message to Aspiring Crypto Projects: Beware of Regulation
Ultimately, the $111,614.00 punishment against LBRY weighed in favor of the SEC. Chair Gensler’s regulatory power was further exemplified and sent a strong message to other aspiring projects to be weary of venturing into the crypto regulation game. Should these regulatory efforts lead to user protection and in turn, boost public confidence within the industry, that’s an outcome that everybody could get behind.
Disclaimer: Cryptocurrency trading involves significant risks and may result in the loss of your capital. You should carefully consider whether trading cryptocurrencies is right for you in light of your financial condition and ability to bear financial risks. Cryptocurrency prices are highly volatile and can fluctuate widely in a short period of time. As such, trading cryptocurrencies may not be suitable for everyone. Additionally, storing cryptocurrencies on a centralized exchange carries inherent risks, including the potential for loss due to hacking, exchange collapse, or other security breaches. We strongly advise that you seek independent professional advice before engaging in any cryptocurrency trading activities and carefully consider the security measures in place when choosing or storing your cryptocurrencies on a cryptocurrency exchange.
