SEC Lowers LBRY Fine Significantly Due to ‘Near-Defunct’ Status

SEC revises LBRY’s fine due to the startup’s lack of funds and withdraws disgorgement requests

article-image

Comdas/Shutterstock, modified by Blockworks

share

The Securities and Exchange Commission (SEC) sought to revise its fine against blockchain-based content-sharing platform LBRY after taking into account the marketplace’s inability to afford the substantial $22 million penalty.

Additionally, considering LBRY’s “lack of funds and near-defunct status,” the agency chose to withdraw its request for disgorgement, or forfeiture of ill-gotten gains.

In a filing dated May 12, the Commission has now requested the US District Court of New Hampshire to impose a fine of $111,614.

In March 2021, the SEC filed a lawsuit against LBRY, accusing them of offering LBRY Credit tokens (LBC) without registering them as securities. LBRY CEO Jeremy Kauffman expressed concern this decision could potentially endanger the entire US crypto industry, as it would establish a precedent that could classify “almost every cryptocurrency” as security.

Although LBRY did not conduct an initial coin offering (ICO) or a similar public token sale, the SEC alleged that LBRY’s team retained tokens for themselves through a “pre-mine” process and subsequently released them on secondary exchanges to generate funds for their operations.

The SEC secured victory in the case through a summary judgment in Nov. 2022, when a federal judge recognized that the tokens incentivized LBRY’s team to develop the network, creating the perception among investors that investing in LBC on secondary markets would yield profits.

LBRY in Dec. hit back at the SEC’s request for $22 million in disgorgement, saying the amount was “not a reasonable approximation of profits causally connected to the violation.”

Now, the SEC has also sought an injunction to prevent LBRY from violating Section 5 of the Securities Act of 1933, which prohibits unregistered offerings of crypto securities. This injunction will continue until LBRY meets two requirements: disposing of its LBC holdings and dissolving the company, as it has expressed intent to do in court.

The SEC argued that LBRY’s possession of LBC tokens indicates the potential for additional unregistered sales, which supports the necessity of an injunction.

“LBRY satisfies the factors for injunctive relief and there is a reasonable likelihood it will violate Section 5 again,” the agency said. Blockworks has reached out to LBRY for comment. 

Meanwhile, LBRY contended in Dec. 2022 that an injunction is unnecessary since it’s already in the process of shutting down operations and burning existing LBC tokens, according to the filing. The SEC pointed out that these actions have not been taken yet.


Get the news in your inbox. Explore Blockworks newsletters:

Tags

Decoding crypto and the markets. Daily, with Byron Gilliam.

Upcoming Events

Old Billingsgate

Mon - Wed, October 13 - 15, 2025

Blockworks’ Digital Asset Summit (DAS) will feature conversations between the builders, allocators, and legislators who will shape the trajectory of the digital asset ecosystem in the US and abroad.

Industry City | Brooklyn, NY

TUES - THURS, JUNE 24 - 26, 2025

Permissionless IV serves as the definitive gathering for crypto’s technical founders, developers, and builders to come together and create the future.If you’re ready to shape the future of crypto, Permissionless IV is where it happens.

Brooklyn, NY

SUN - MON, JUN. 22 - 23, 2025

Blockworks and Cracked Labs are teaming up for the third installment of the Permissionless Hackathon, happening June 22–23, 2025 in Brooklyn, NY. This is a 36-hour IRL builder sprint where developers, designers, and creatives ship real projects solving real problems across […]

recent research

Research Report Templates (19).png

Research

Suilend has grown into the top money market and liquid staking provider on Sui. STEAMM, Suilend’s Superfluid AMM, presents a compelling avenue for growing market share within Sui’s DEX landscape and revenue generation for the protocol. Suilend’s multi-product suite position it well for owning market share across key verticals. While current metrics across the Sui ecosystem are likely inflated due to Sui Foundation incentive programs, SEND trades at amongst the lowest multiples in the lend/borrow sector, suggesting that a bull case for continued growth in the ecosystem may be mispriced.

article-image

Decentralized money was a “very unpopular goal” when concepts were proposed in the ’90s, said Nick Szabo

article-image

Cove aims to deliver “risk-adjusted yield” through curated DeFi vaults

article-image

The best capital markets are open to the most people — and crypto capital markets are open to everyone

article-image

Post-conference musings on Firedancer, Kraken, Solana Mobile and Trump

article-image

Executives expect others to follow SharpLink Gaming’s lead in purchasing an asset that has surged this past month

article-image

After a weekend of tariff policy shifts, investors appear confident that trade deals are underway