A federal judge ruled on Monday that blockchain-based file sharing platform LBRY violated securities laws.
In a court filing dated Nov. 7, U.S. District Judge Paul J. Barbado ruled in favor of the SEC, judging that LBRY unlawfully offered LBC tokens and failed to register them with the U.S. Securities and Exchange Commission (SEC).
LBRY, or Library Credit, is a decentralized content hosting platform that claims to do ”to publishing what Bitcoin does to money.” The native LBC token credits publishers when content consumers generate revenue. .
The SEC took legal action against LBRY in March 2021, alleging that sales of the blockchain’s native coin constituted an unregistered securities offering.
LBRY refuted these claims and argued that the regulator did not give it enough notice about the registration requirement, thereby violating its right to due process.
Judge Barbado ruled that “no reasonable trier of fact” could reject the SEC’s claim, quashing LBRY’s defense.
His ruling also said that the SEC has based its claim on a straightforward application of a Supreme Court precedent federal courts have applied throughout the country for 70 years.
“While this may be the first time it has been used against an issuer of digital tokens that did not conduct an ICO, LBRY is in no position to claim that it did not receive fair notice that its conduct was unlawful,” said Judge Barbado in his ruling.
LBRY said the language used in the ruling “sets an extraordinarily dangerous precedent,” for the crypto industry. The team argued that under these terms, every cryptocurrency, including Ethereum, would be considered a security in the U.S.
The crypto protocol also said that the LBRY verdict also has consequences for crypto companies facing similar ongoing battles with the SEC. In Dec. 2020, the SEC took legal action against XRP-issuer Ripple Labs for violating the same securities laws with an unregistered token offering.
“The standard the SEC advanced yesterday for what constitutes a security includes 99% of tokens. Whatever happens to LBRY (and Ripple), will affect the entire cryptocurrency industry,” said LBRY in a tweet earlier this year.