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The US Securities and Exchange Commission (SEC) filed a petition on Friday, May 12, requiring the court to lower the $22 million penalty imposed against LBRY. The security watchdog submitted that it recognizes the decentralized publishing protocol, LBRY, cannot afford the multi-million dollar punishment. 

SEC Foregoes Million-Dollar Penalty Owed by LBRY 

The federal agency now seeks the court to lower the penalty to $111,614 instead. Additionally, SEC is seeking the dismissal of a separate application demanding forfeiture of $22 million it considers to constitute ill-gotten gains.

SEC move is undertaken on the awareness that LBRY is inoperative and lacks the financial resources to pay the large fine. Initially, SEC demanded a $22 million payment and an additional $22 million civil penalty. A written response issued by LBRY chief executive Jeremy Kauffman ruled out the SEC’s decision as an act of goodwill.

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Kauffman considers the decision led by Garry Gensler-led SEC to forego disgorgement does not amount to a change of heart. Instead, it only serves to satisfy self-interest. 

The SEC decision is informed by the awareness they would lose, hence the need to avert suffering from a bad precedent. Nonetheless, the decision portrays a positive sign that would benefit LBRY by marking the end of its struggles. 

Kauffman regretted recent enforcement actions undertaken by SEC, particularly by threatening Odysee. The firm is a wholly-owned subsidiary that operates as a blockchain-based media. Odyssee suffers arbitrary and hostile challenges from SEC, similarly experienced by other blockchain firms.

The pronouncement by LBRY’s chief executive is contradictory, considering that SEC triumphed in the case against the blockchain-based platform.

SEC Charged LBRY for Unregistered Securities

The court ruled in SEC’s favor in the November 2022 ruling. The regulator had charged LBRY for offering unregistered securities to the US. The watchdog indicated that the firm sold the LBC tokens in March 2021 as securities and investment contracts. 

The agency’s attorney alleged that the tokens were offered to customers before the full development of LBRY’s network. He added that selling the tokens generated capital and settled operational costs. 

The agency submitted that LBRY earned $12.2 million between July 2016 and February 2021. The proceeds involved cash and crypto. The decentralized publishing platform enables community members to upload content only when they pay via LBC tokens. 

LBC tokens are trading on cryptocurrency exchange platforms, including CoinEx and Hotbit. The scrutiny of CoinGecko data indicated that the LBC value plummeted 99% from the $1.60 high realized in 2016.

SEC Petitions Court to Hinder LBRY from Offering Unregistered Securities

While SEC considers pursuing a multi-million dollar charge untenable, it petitioned the court to enjoin LBRY to hinder it from future dealing in unregistered securities. 

The SEC argues that LBRY is yet to admit the illegal behavior despite offering securities for a period extending for over five years. The agency argued that LBRY has the potential to still offer LBC tokens for sale, whether directly or indirectly, via Odysee. 

LBRY has, in the past, indicated that Odysee runs autonomously. The December 2022 statement indicated the two operate as distinct entities. LBRY submitted in its response dismissing the claim that Odysee ever engaged in selling LBC tokens.

The SEC called out LBRY for delaying to dissolve of its operations or burning LBC holdings to eliminate them from circulation. The SEC attorney filed the need for LBRY to honor the two actions. 

Lasting Effect of SEC Enforcement Action

While SEC has imposed several enforcement actions in the past, the majority lead to settlements before advancing to court proceedings; the current legal fight with LBRY would have a lasting effect on the digital assets. 

LBRY’s attorney argued that the language utilized by SEC would ultimately set a dangerous precedent. The firm submitted that granting the SEC petition would condemn all cryptos into securities, including Ethereum.

Kauffman had warned against a favorable verdict for SEC since it would severely harm the crypto industry. He perceived the regulatory approach deployed by SEC as a hot-button issue. 

Considering that the verdict would apply to all crypto firms, Kauffman warned executives at Messari Mainnet that the SEC would ultimately damage the cryptos industry in the US. 

Editorial credit: Maurice NORBERT /

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Michael Scott

By Michael Scott

Michael Scott is a skilled and seasoned news writer with a talent for crafting compelling stories. He is known for his attention to detail, clarity of expression, and ability to engage his readers with his writing.