Federal court ruled LBRY’s LBC offerings were unregistered securities

A federal judge on November 7, 2022 granted the Securities and Exchange Commission summary judgment against LBRY, Inc., holding that the company offered and sold its LBRY Credits token, or LBC, as an unregistered security. The U.S. District Court for the District of New Hampshire also denied LBRY’s cross-motion for summary judgment.

The decision mattered because it was a litigated application of federal securities law to a token that had a functional role on a blockchain network. It strengthened the SEC’s enforcement position, but its reach was narrower than claims that every cryptocurrency had been declared a security.

What the court decided

The SEC filed the case on March 29, 2021, alleging violations of Sections 5(a) and 5(c) of the Securities Act of 1933. By the summary-judgment stage, LBRY did not dispute that it had offered and sold LBC in interstate commerce without registering the offerings, and it did not claim an exemption. The contested questions were whether the offerings involved an investment contract and whether LBRY lacked fair notice that registration law applied.

Judge Paul J. Barbadoro applied the Howey framework: an investment of money in a common enterprise with a reasonable expectation of profits derived from the entrepreneurial or managerial efforts of others. The court said only that final component was disputed on the record before it.

The opinion found that LBRY’s communications presented LBC as capable of increasing in value through the company’s work on the LBRY Network. It also found that LBRY’s business model tied the company’s financial interests to growth in the token’s value. Those facts, in the court’s analysis, established that prospective purchasers were being offered an investment dependent on LBRY’s efforts.

Utility did not end the inquiry

LBRY argued that LBC was designed for use on its blockchain and that some purchasers acquired it for consumption rather than investment. The court accepted that the token had utility and that an unknown number of buyers had consumptive motives. It nevertheless held that a token can have both consumptive and speculative uses and still be offered as an investment contract.

That distinction is central to the ruling. The court did not say that a “utility token” label automatically creates a security, or that utility is irrelevant. It examined the economic reality of LBRY’s particular offerings, including the company’s representations and retained stake. The decision therefore addressed the transactions and scheme in the record, not every use or transfer of LBC in every setting.

The fair-notice defense failed

LBRY also argued that earlier SEC guidance and enforcement had focused on initial coin offerings, while LBRY had not conducted a conventional ICO. The court found no SEC statement saying registration requirements applied only to ICOs and no persuasive reading of Howey that would support that limitation. It concluded that LBRY had no triable fair-notice defense.

Institutionally, the ruling gave the SEC a clear district-court victory for using an established, fact-specific securities test beyond a conventional token launch. A federal district-court opinion is not binding nationwide, however, and the order did not resolve the legal status of all crypto assets or adjudicate every secondary-market transaction involving LBC.

What remained unresolved on November 7

The November 7 order decided liability, not the remedy. The SEC had sought permanent injunctive relief, disgorgement with prejudgment interest and civil penalties, but the court reserved the remaining issues and directed the clerk to schedule a status conference. The opinion also declined to decide how possible future LBC offerings should be treated on the record then available.

No token-price or broader market-performance claim is made here. The verifiable development on November 7 was the liability ruling itself; its immediate significance was regulatory and institutional rather than a measured market move.