Inside LBRY’s SEC Penalty and Chair Gensler’s Authority over Crypto Regulation

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.

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Kassidy Florette
Kassidy followed her friends to buy her first Bitcoin in 2015, has been participating in various projects since 2019 as a marketing communication lead. Her knowledge and passion brings her in as a contributor.