Today, the Securities and Exchange Commission filed a complaint against LBRY Inc alleging that all distributions of LBRY Credits by LBRY Inc are unregistered securities offerings. This claim is a tremendous threat to the entire cryptocurrency industry.
The LBRY network is decentralized and not at risk. For users of the LBRY protocol and apps, your channels, content, and token holdings are not at risk. Even in an unlikely scenario in which LBRY Inc loses, the LBRY protocol will live on and work on it will continue.
LBRY Inc has been preparing to fight this case for three full years, which is how long the SEC has been investigating this matter. We wanted to tell you sooner, but transparency in ongoing investigations is not welcomed by the SEC.
There is a standalone website for this case at https://helplbrysavecrypto.com
Frequently Asked Questions
Are my LBRY Credits safe?
Yes, all of your Credits remain yours and remain usable even after the SEC’s complaint is filed and regardless of the outcome.
If you want to ensure you have complete control over your Credits, channels, and content, download LBRY Desktop.
Is the LBRY network in danger?
The LBRY network is robust and decentralized, and far harder to disrupt than LBRY Inc. Hundreds of people across six continents contributed to LBRY last year (c’mon Antarctica!). Even in the scenario that LBRY Inc is literally destroyed by the SEC as a result of this lawsuit, the LBRY project will continue.
What are the specific charges?
Simply put, the SEC believes that the LBRY Credits are securities and should have been registered with the SEC prior to selling. This case is about overregulation. The SEC is not alleging fraud and is not charging any individuals.
However, the SEC believes that, at a minimum, the following transactions were unregistered securities offerings:
- $10,000 worth of Credit sales to Shapeshift in July of 2016 to facilitate distribution to their users.
- Several hundred thousand dollars worth of Credit sales to Flipside Crypto in 2017 and 2018, despite Flipside explicitly saying they’re for use on the network.
- Several million dollars worth of Credit sales on exchanges, over a period of several years, only after the LBRY protocol was completely functional and had been in use for over a year, and always a small portion of private sales.
At times, the SEC has made representations that even tipping $.25 worth of Credits for a clever GIF is an unregistered security transaction that must be registered and tracked. However, it’s unclear at this time if the SEC will continue to make this allegation in court.
A full table of sales is available in Appendix A. All of our Credit use has been diligently tracked at [lbry.com/credit-reports (https://lbry.com/credit-reports).
What defenses will LBRY Inc assert to defeat the lawsuit?
We do not believe that the LBRY token is a security subject to SEC regulation. The LBRY Credit is a commodity that facilitates the LBRY protocol which thereby allows individuals to publish content, purchase content, tip creators, and boost content on the decentralized LBRY protocol.
The SEC claims that the LBRY Credits lack sufficient utility and are not purchased for reasons of usage, which contradicts the facts and history of experience on the LBRY platform. The SEC’s position is that if something has value and someone buys it and the market sets the price, then it’s an investment contract and hence a security.
Has anyone alleged harm or damages?
Despite LBRY being used by millions of people, to our knowledge, not a single person has alleged harm or damage as a result of purchasing LBRY Credits.
Who is LBRY Inc represented by?
LBRY has hired one of the best law firms in the blockchain space — Perkins Coie. Keith Miller and Adam Schuman will represent us at trial. Keith is a former SEC enforcement lawyer, and Adam is a former federal prosecutor. Keith and Adam have been named by Business Insider as two of the top 20 cryptocurrency lawyers in the country.
What’s the timeline?
LBRY Inc has been under investigation for three years, since May of 2018.
The SEC repeatedly requested documents from LBRY Inc, at times doing so in overbearing and costly ways that seemed punitive. If it’s true that LBRY Inc violated the law in the ways the SEC alleges, all of the relevant facts were clearly known to the SEC by the fall of 2018. We’re glad to finally be getting through this painful process and to be allowed to express our positions to the public and in court.
The trial will likely not be resolved in 2021.
What’s the cost been to LBRY Inc?
LBRY Inc has spent more than $1,000,000 on legal fees and several thousand hours of team member time (a similar or greater value) on this case. This has been a substantial burden to bear as a small start-up and is extremely chilling to an innovative industry. If it takes several million dollars in legal fees just to begin, blockchain becomes much less accessible.
Why is this case unusual compared to other cases the SEC has brought?
There are several facts about this case that are unusual to past cases:
- The SEC is not alleging fraud.
- LBRY Inc conducted no Initial Coin Offering (ICO).
- LBRY Inc did not breach any fiduciary duties.
- LBRY Inc at no time indicated that LBRY Credits were an investment, and consistently discouraged
purchasing Credits for this purpose.
- LBRY Inc did not sell any tokens until after they could be used on a functional network, a previously stated key element by the SEC in how they assess token transactions.
Did LBRY Inc make an attempt to settle?
Yes. The SEC declined to offer any terms that would have made it viable for U.S. citizens to exchange tokens or to allow LBRY Inc to continue to operate. We were willing to give them a pound of flesh, but they were only interested in our head.
Did LBRY Inc ask how to operate legally?
We repeatedly asked the SEC for guidance on how it would be possible to run the company legally. The SEC said that they could not tell us how to operate legally, but could only tell us that we were breaking the law.
What are the implications for the blockchain and tech industry?
The implications of this case are extremely dire for the blockchain and technology industry in the United States. The SEC is alleging that any entity that transfers a blockchain token while simultaneously working or funding work on it is performing a security offering. Under that standard, every blockchain technology that is actively developed faces existential threat, so long as that development is either funded by a token holder, even if indirectly, or if the developers themselves hold the token.
This case is also chilling for the start-up scene in the United States more generally. We’ve acted in extremely good-faith, attempted to follow all the rules, and complied with the SEC at every turn. We would be hesitant to start another company in the United States in any cutting-edge field, as cutting-edge fields frequently have unclear regulations.
Why are they charging LBRY Inc when there are many other companies with worse facts, or that are outright frauds and scams?
We would love to know the actual answer to this question. Our best guess is that by acting in such a radically transparent manner, we made ourselves an easy target. We fear that the SEC is more intent on rigid and overly strict enforcement of their interpretation of the rules, than seeking to find constructive solutions that promote innovation and business within a reasonable regulatory framework.
Consider an apathetic enforcer whose job review is simply “how many enforcements did you produce”. Are they more incentivized to go after what is at-hand, or what is actually wrong?
Will LBRY Credit distribution, rewards program, or anything else change as a result of this case?
At this time, we do not expect any of these programs to change. Some exchanges may choose to no longer allow U.S. customers to exchange LBRY Credits. We do not expect any other changes until the case is resolved. Please see our FAQ for a full list of available exchanges.
Where can I view the full complaint?
The full complaint can be viewed at odysee.com/secvslbrycomplaint
How can I schedule an interview or request a quote?
How can I support LBRY Inc in this case?
- Share this story on social media, in your own words, using the tag #helplbrysavecrypto. Or you can just share a link to helplbrysavecrypto.com.
- Sign the petition.
- Donate to our defense fund.
- If you’re involved in one of the hundreds of other blockchain companies being investigated by the SEC, tell your story. The SEC doesn’t want you to talk because your silence helps them. By talking, we can coordinate our response. Until one of us wins, we’ll continue to be digested, bit by bit.