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SEC Charges Blockchain Firm With Unregistered Digital Asset Offerings

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What You Need to Know

  • The case turns on "whether the digital asset at issue is or is not a security," lawyer Nicolas Morgan says.
  • LBRY received more than $11 million in U.S. dollars, Bitcoin and services from purchasers.
  • The SEC says LBRY's tokens are securities.

The Securities and Exchange Commission has charged LBRY, a New Hampshire-based blockchain company, with conducting an unregistered offering of digital asset securities.

According to the SEC’s complaint, from at least July 2016 to February 2021, LBRY, which offers a video sharing application, sold digital asset securities called “LBRY Credits” to numerous investors, including investors based in the U.S.

The SEC’s complaint, filed in the federal district court in New Hampshire, alleges that LBRY did not file a registration statement for the offering, and that the offering failed to satisfy any exemption from registration.

As alleged, LBRY received more than $11 million in U.S. dollars, Bitcoin, and services from purchasers who participated in its offering.

“The SEC must have had déjà vu when it brought this case, which is reminiscent of the ICO cases the commission brought following the DAO Report in 2017,” Nicolas Morgan, partner at the global legal defense firm Paul Hastings in Los Angeles and a former senior trial counsel in the SEC’s Enforcement Division, told ThinkAdvisor Wednesday in an email. “Like those early cases, the SEC’s allegations turn on whether the digital asset at issue is or is not a security — there is no allegation of fraud.”

Having concluded that the LBC is a security, Morgan continued, “the SEC says the company should have registered its offering. Rather than settling, the company appears to be litigating, which may be a reaction to uncertainty around the legal definition of a security.”

The SEC complaint further alleges that by failing to file a registration statement, LBRY denied prospective investors the information required for such an offering to the public.

The SEC seeks permanent injunctive relief, disgorgement plus prejudgment interest and civil penalties.