Judge sides with SEC in case against Manchester video-sharing web company

Mark Hayward, The New Hampshire Union Leader, Manchester
·3 min read

Nov. 8—A federal judge has backed the Securities and Exchange Commission case against LBRY Inc., a Manchester video-sharing company, agreeing that its cryptocurrency-like tokens amount to securities that must be registered before they can be sold.

If LBRY and founder Jeremy Kauffman of Manchester do not challenge the ruling, they could face requirements to refund investors and civil penalties that could amount to millions.

The ruling came Monday in the closing days of the election, when Kauffman was campaigning as a Libertarian candidate to the U.S. Senate.

"The SEC vs LBRY case establishes a precedent that threatens the entire US cryptocurrency industry," Kauffman wrote on Twitter on Monday. "Under this standard, almost every cryptocurrency, including Ethereum and Doge, are securities. The future of crypto now rests with an org worse than the SEC: the US Congress."

In 2016, Kaufman launched LBRY Inc., whose website Odysee.com, is offered as an alternative to YouTube and other video-sharing websites. He harnessed blockchain technology, which Bitcoin and other cryptocurrencies have used to redefine money, to restructure video-sharing.

Critics say that without controls Odysee is subject to disinformation and incendiary content.

But the SEC case dealt with how LBRY finances itself. Part of LBRY involved tokens, named LBCs, that the company offered for sale. Users of the site could use tokens to pay for content or to tip producers.

LBRY retained millions of the tokens, and the SEC claimed they acted like securities, investments that are usually company stocks or corporate bonds.

Shortly after its launch, the company was worth $140 million. Within a month, its market capitalization mushroomed to $1.2 billion.

It is yet another hit for cryptocurrency, whose skyrocketing values plummeted in 2022. The SEC has enforced securities laws against companies that mine and release crypto to fund company operations. Critics have said that crypto does not line up as a traditional stock or bond and argued that, if anything, it should be regulated as a commodity.

An article posted on bitcoinist.com ran with the headline "Is Crypto in Danger After LBRY's Defeat Against The SEC?" It goes on to say that many cite the LBRY case as one of the most important legal actions for the crypto industry.

In March 2021, the SEC brought a civil action against LBRY, and the company filed counterclaims. The ruling by U.S. District Court Judge Paul Barbadoro dealt with summary judgment, where a judge concentrates on the law and not any facts that might be in dispute.

In his ruling, Barbardoro brought up several statements by Kauffman and other company officials that treated the LBCs more as an investment.

"The SEC's burden is made all the easier by statements LBRY made about its managerial efforts, like how 'the long-term value proposition of LBRY is ... dependent on our team staying focused on the task at hand: building this thing.' By its own account, LBRY expended significant managerial efforts to develop its Network and increase the value of LBC," the judge wrote.

On Monday, LBRY tweeted out a link to the decision.

"We're going to lick our wounds for a little bit but we're not giving up," the company wrote in a tweet. "We've got a bright team, tens of millions of pieces of content, hundreds of thousands of creators, and one of the most popular web3 apps in the world. The best is yet to come."

Meanwhile, Kauffman was in campaign mode on Tuesday. He posted a photo of himself next to a ballot urging Libertarians to vote. And he posted satirical videos created by his campaign — to both Odysee and YouTube.