Hester Peirce, a commissioner for the U.S. Securities and Exchange Commission (SEC), dissented from the agency’s case against LBRY on Oct. 27.
LBRY Inc., the firm behind the LBRY blockchain and content-sharing network, announced on Oct. 19 that it would not appeal its loss in the case, marking a formal end of proceedings. The firm will instead shut down and enter receivership in order to pay millions of dollars of debts to various parties, including the SEC.
Peirce questioned the value of this outcome, writing:
“Are investors and the market really better off now after the Commission’s litigation contributed to the demise of a company that had built a functioning blockchain with a real-world application running on top of it?”
She added that the case “illustrates the arbitrariness and real-life consequences” of the SEC’s regulation by enforcement approach toward the crypto sector.
Importantly, Peirce emphasized that the SEC did not allege that LBRY committed fraud. She noted that, unlike many other projects, LBRY did not fail to meet its promises. Instead, Peirce said, the project had a functional blockchain during most of its token sales, and its content-sharing platform was not only operational but popular.
Peirce added that the SEC took an “extremely hardline” approach: it sought $44 million in penalties, demanded LBRY burn all tokens in possession, and said that these remedies alone would not ensure that LBRY would not violate registration rules in the future. The agency eventually reduced its penalty request to $111,614, she noted.
Peirce criticizes SEC’s entire approach
Peirce also argued against her agency’s broader stance on regulation, stating:
“The application of the securities laws to token projects is not clear, despite the Commission’s continuous protestations to the contrary. There is no path for a company like LBRY to come in and register its functional token offering.”
Peirce added that the SEC’s “scorched earth” tactics in the case at hand were disproportionate compared to any possible harm that investors may have faced. She said that the time and resources that her agency spent on the LBRY case could have instead been spent on creating a regulatory framework for projects to adhere to. She warned that the SEC’s severe reaction will prevent future blockchain experiments.
Yet she observed that the judge did not rule on the security status of the LBRY token itself (LBC) or secondary sales of LBRY, which may allow the blockchain to continue.
Peirce added that she had been opposed to the case from the start but was unable to comment on the case as it was pending.
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