March 5, 2024

Hester Peirce speaks out against LBRY enforcement action: ‘The market could have decided’

The SEC commissioner said the regulator’s actions “forced a group of entrepreneurs to abandon what they built,” with LBRY announcing in October it planned to wind down operations.

Hester Peirce of the United States Securities and Exchange Commission (SEC) has issued a dissenting opinion on the regulator’s lawsuit against blockchain firm LBRY.

In an Oct. 27 statement, Peirce described feeling “unsettled” following the SEC’s enforcement action against LBRY in March 2021. In November 2022, a judge ruled in favor of the SEC, stating that the firm’s LBC token was a security. Though LBRY appealed the decision, the company announced in October that it planned to wind down, citing millions of dollars in debt due to legal costs.

“This case illustrates the arbitrariness and real-life consequences of the Commission’s misguided enforcement-driven approach to crypto,” said Peirce.

According to Peirce, the SEC’s case against LBRY was “puzzling” given there was no evidence of fraud and the firm took a conservative approach to digital assets compared to other crypto projects. The SEC commissioner suggested that there had been no clear path for a project like LBRY to come in and register with the regulator, and “it would not be a particularly useful effort” if it had managed to do so.

“[T]he Commission took an extremely hardline approach in this case,” said Peirce. “For example, after winning on summary judgment, the Commission sought monetary remedies of $44 million and asserted that LBRY’s offer to burn all tokens in its possession was not sufficient assurance that LBRY would not violate the registration provisions in the future. The Commission’s requested remedies were entirely out of proportion to any harm.”

She added:

“The time and resources we expended on this case could have been devoted to building a workable regulatory framework that companies like LBRY could have followed. Then the market could have decided LBRY’s fate.”

“The Commission’s action forced a group of entrepreneurs to abandon what they built,” said Peirce. “Our disproportionate reaction in this case will dissuade people from experimenting with blockchain technology.”

Related: SEC revises $22M penalty against LBRY, seeks $111K instead

Peirce has often been a dissenting voice at the SEC in crypto-related enforcement cases. In September, she told Cointelegraph that crypto firms shouldn’t give up on trying to launch in the United States, but added she believed the commission was “far behind” in finding a solution for a regulatory framework.

Gary Gensler, who chairs the SEC, has often called on crypto firms to “come in and talk” to the regulator to avoid potential enforcement actions. To date, the regulator has filed lawsuits against crypto exchanges Binance and Coinbase, and many other firms in the space.

Magazine: Crypto regulation: Does SEC Chair Gary Gensler have the final say?