SEC Acted as a Broken and Failed Agency in the LBRY Case: John Deaton

The post SEC Acted as a Broken and Failed Agency in the LBRY Case: John Deaton appeared first on Coinpedia Fintech News

In a call for regulatory scrutiny, well-known advocate John Deaton has urged law schools across the nation to incorporate the LBRY case into their curriculum. This landmark case, he argues, serves as a reminder of the Securities and Exchange Commission’s (SEC) shortcomings, exposing its ineffectiveness and inherent flaws.

Is this just frustration speaking or does Deaton have a point?

LBRY: The Rise and Fall

LBRY began as a self-funded project to create a decentralized digital content-sharing platform. In 2016, they introduced LBC, their native currency, for various uses on their platform. Unlike ICO tokens, LBCs were directly sold through their app, and they used them for various purposes, including employee compensation. Further, LBRY kept 400 million LBC tokens for itself. 

In 2021, the SEC took legal action against LBRY, claiming they sold LBC as an unregistered security. This legal battle includes court orders, repayments, and fines.

Judgement Day

On November 7, 2022, Judge Paul J. Barbadoro approved the SEC’s request for a quick decision against LBRY, Inc. After this decision on November 29th, LBRY’s founders shared the troubling news on Twitter.

They said this decision could mean the end of their platform because the SEC wants to impose a big fine of over $20 million, more than the $12.2 million they earned from selling LBRY tokens.

Lessons to be Learned

In a recent tweet, John E. Deaton urged law schools to include the LBRY case in their teaching. He believes this case teaches valuable lessons that go beyond just applying the Howey Test to modern blockchain and cryptocurrency.

The LBRY case should be taught in law schools across the country, and not just regarding the application of the Howey Test to modern day blockchain technologies and crypto, but also to specifically highlight SEC overreach.

With @FTX_Official @CelsiusNetwork @investvoyager #Luna… https://t.co/5lvR5gSFyK

— John E Deaton (@JohnEDeaton1) October 20, 2023

Mr. Deaton argues that instead of focusing on well-known cases involving big players in the crypto world like FTX, Celsius Network, and Voyager, the SEC went after a small American company in New Hampshire. They not only threatened to harm it financially during the investigation but ultimately succeeded.

Controversies Arise

What makes the LBRY case controversial is the absence of proven fraud or misrepresentation. Most LBRY Credits (LBC) holders in this case were regular people using the platform, not typical investors. The majority of LBC holders are users of the platform, not investors.

Despite spending millions on the case, the SEC’s pursuit ended with a small $130,000 fine. Deaton says this case alone shows that the SEC is an ineffective agency.