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LBRY Fought the SEC, and Regulator Won — But Ripple is Changing Things

Published October 20, 2023 11:28 AM
James Morales
Published October 20, 2023 11:28 AM
Key Takeaways
  • Under the pressure of millions of dollars worth of debt, LBRY Inc. is shutting down.
  • The company will no longer appeal a court judgment that deemed its sales of LBC tokens breached securities law.
  • But while the death of LBRY may look like a victory for the SEC, elsewhere the regulator is on the back foot.
  • The SEC also dropped charges against Ripple executives.

Through multiple lawsuits alleging that token sales breach securities law, in recent years, the US Securities and Exchange Commission (SEC) has taken on crypto firms large and small. But while the likes of Ripple, Coinbase, and Binance may have deep enough pockets to take the Commission on in court, for little old LBRY, the cost of resistance proved too high. And on Thursday, October 19, the company bowed out and accepted defeat. 

Somewhat ironically, the same day LBRY buckled under pressure from the SEC, the agency itself surrendered in a high-profile legal battle against Ripple, marking a potential tide change for the American crypto sector. But for LBRY Inc., which developed the LBRY content-sharing platform, Ripple’s victory, and its implications for US securities law, have come too late.

Evolving Precedents in Crypto Securities Law

Like Ripple, authorities accused LBRY Inc. of selling unregistered securities. In both cases, judges ultimately ruled that crypto tokens issued by the two companies, XRP in Ripple’s case and LBC in LBRY’s, can be considered securities, but only under certain conditions.

In LBRY’s case, Judge Peter Barbaro sided with the SEC but stopped short of a verdict that would designate LBC a security in and of itself. Rather, he was clear that only LBRY Inc. broke the law, and only because it held back significant amounts of pre-mined LBC tokens

For Ripple, the court held up the SEC’s contention that XRP sales directly to institutional investors constituted an illegal securities transaction. However, the judge ruled against the regulator’s assertion that securities law applied to XRP sales on crypto exchanges.

On Thursday, that verdict was further entrenched after the SEC dropped charges against senior Ripple executives and signaled that it would not appeal Judge Torres’ ruling. In response to the decision, Ripple declared the decision a “landmark SEC surrender.” It isn’t clear whether the company will now pursue full vindication and appeal the charge relating to institutional XRP sales.

Crippled by Debt, LBRY Inc. Concedes Defeat

With Ripple celebrating the SEC’s move to dismiss charges as a major victory, the regulator’s ability to win other ongoing cases against American crypto firms has been called into question.

Unfortunately for LBRY, the good news has come too late.

As recently as 6 weeks ago, the firm looked like it was preparing to take on the SEC by appealing Judge Barbaro’s previous decision. However, in an announcement  on Thursday, LBRY acknowledged that mounting debts had forced it to shut down, ending any hopes that it would continue to fight the SEC in court.

Going forward, the company said that it would place its assets into receivership, potentially clearing the path for selling them to repay creditors, including the SEC, LBRY Inc.’s legal team, and an unnamed private lender.

Although LBRY Inc. has sought to reassure users that the decentralized LBRY network won’t face any disruptions, without a captain to guide the ship, the platform’s future remains uncertain.

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