The United States Securities and Exchange Commission (SEC) is seeking to revise a $22 million punishment imposed on decentralized content platform LBRY. On May 12, 2021, the SEC filed a motion in a New Hampshire District Court to reduce the penalty to only $111,614. The original fine was intended to regain the amount LBRY reportedly gained from the sale of its token LBRY Credits (LBC).
The reduced penalty is due to LBRY's inability to pay the amount. The SEC also requested to halt unregistered future offerings of crypto asset securities. In the filing, the SEC acknowledges that the ability to pay is a major factor when determining a penalty.
The SEC filed a civil lawsuit against LBRY in March 2021 for the unregistered sale of LBC. In accordance with the Securities Act of 1933, it was the obligation of LBRY to register the sale or to qualify for a relevant exemption. Judge noted that LBC is a security and the SEC's request for $22 million was considered reasonable by the court.
This was rejected by LBRY who claimed that the calculation of the sum is wrong and the amount is vastly overstated. In December 2022, the company declared that it is unable to afford the penalty and will likely not survive. The SEC then settled for a reduced penalty of $111,614.
The current case presents an example of the implications of civil penalty. Companies must adhere to the regulations set by the SEC, failing to do so could result in large fines that can potentially ruin the operations. For SEC's part, the regulator often looks for appropriate fines based on the ability of the company to pay the penalty. In this case, the SEC reduced the penalty from $22 million to $111,614 due to LBRY's inability to pay.
A new light is shed on the issue of imposing fines in cases where the company shows signs of being unable to pay. It shows that authorities are largely aware of the businesses’ financial status and may adjust the penalty accordingly. The SEC ruling further suggests that before companies launch new offering, they should investigate the local jurisdiction's regulations. Companies who fail to comply can face legal and financial consequences.
Lucy Clark
- 2023-05-15
SEC Reduces Giant Penalty on LBRY
The United States Securities and Exchange Commission (SEC) is seeking to revise a $22 million punishment imposed on decentralized content platform LBRY. The SEC filed a motion in a New Hampshire District Court to reduce the penalty to only $111,614 due to LBRY's inability to pay.
