In a recent request, the SEC has asked the New Hampshire court to reduce the penalties imposed on LBRY, a decentralized content platform famous for its video-sharing platform Odysee.
Considering Legitimate Business Expenses
In November 2022, the New Hampshire District Court ruled that LBRY would have to pay $22 million to the SEC for LBC token as an unregistered security that passed the Howey test.
«The SEC has based its claim on a straightforward application of a venerable Supreme Court precedent that has been applied […] across the country over more than 70 years. The SEC identifies multiple statements by LBRY that it claims led potential investors to reasonably expect that LBC would grow in value […]. LBRY minimizes the significance of these statements and points to its many disclaimers that it did not intend for LBC to be purchased as an investment, but the SEC is correct.»
LBRY opposed the ruling, stating that $22 million is a vastly overstated figure and that it failed to consider legitimate business expenses incurred during software development and hosting.
It is not clear whether the SEC considered this, as their decision to request a lesser penalty is supposedly due to LBRY’s inability to pay rather than a change of heart.
Reduced Penalties Will Suffice
The SEC has expressed that their decision to pursue a lesser penalty was influenced by LBRY’s inability to pay the original amount. LBRY is on the brink of bankruptcy and has stated that it may cease all operations in the future.
If the court approves the SEC’s request, LBRY will have to pay a fine of $111,614 and will be prohibited from holding any future «unregistered offerings of crypto asset securities.»
It is uncertain whether LBRY will bounce back and continue to operate now that their debt to the U.S. government has significantly decreased.
Either way, the inability to raise funds through crypto has severely impacted the company’s revenue collection and may ultimately lead to the loss of Odysee’s unique features that make it a promising alternative to YouTube.