DLT LAW

LBRY's CEO announced today that it was killed by Gary Gensler's SEC.

It's unfortunate that this is the result of the SEC's deep probing. While LBRY, as a company might be dead, the hope is that the decentralized publishing platform may survive on its own.

Just last week, Yitzy Hammer shared a post, summarising some of the key takeaways from the recently-published case.

For a recap of Yitzy's post 👇

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Disclaimers are not enough.

At least not according to Judge Barbadoro.

I just finished reading through the Judge’s recent order issued in SEC v. LBRY, Inc., granting the SEC’s motion for summary judgment against LBRY.

Some immediate takeaways:
🔳Disclaimers are not enough to cover you’re a$%;
🔳Having utility doesn't mean a token can't be sold as an “investment contract”;
🔳Retaining a large portion of tokens for your team may constitute "efforts of others” under Howie;
🔳Everything you say, at any point, will likely be used against you;
🔳Post-sale statements are also fair game;

In the Court’s ruling - issued ~18 months after the SEC brought its initial enforcement action against LBRY - the court found that LBRY offered and sold $LBC as a security in violation of the registration provisions of federal securities laws.

In assessing whether LBRY's offering met the Howie test, the Judge focused on various statements made by LBRY representatives to prospective purchasers.

This is not uncommon. What is unusual, however, is that most statements the court focused on were made (i) post-offering; and (ii) on social media/private statements/interviews, as opposed to in an official whitepaper/website, both of which we tend to think of as less probative/relevant to a Howie analysis.

👨‍🦰LBRY: But your honor, $LBC was purchased strictly as a utility token, and strictly for consumptive use.

The court concluded however that even if some tokens were purchased for consumptive use, that didn't mean that $LBC was not offered as a security.

👨‍⚖️Court: “nothing in case law suggests that a token with both consumptive and speculative uses cannot be sold as an investment contract.”

👨‍🦰LBRY: But your honor, I had a disclaimer.

We've all seen those disclaimers: I HEREBY DECLARE THAT THIS TOKEN IS AND ALWAYS WILL BE A WORTHLESS PIECE OF SH%$. I AM NOT PURCHASING IT FOR INVESTMENT OR ANY OTHER SPECULATIVE PURPOSES. THIS TOKEN IS NOT A SECURITY.

The court also threw that one out the window.

👨‍⚖️Court: “a disclaimer cannot undo the objective economic realities of a transaction.”

Regarding Howie prongs 3 and 4 ("expectation of profit from the efforts of others"), the court concluded that by retaining 40% of all $LBC for itself, LBRY “signaled that it was motivated to work tirelessly to improve the value of its blockchain for itself and any LBC purchasers.”

Before you freak out, it's important to note that the LBRY decision is not binding on other courts, and may be limited to the specific facts and circumstances of the case.