In this case, the Securities and Exchange Commission (SEC) filed a lawsuit against LBRY, Inc. in the United States District Court for the District of New Hampshire. The SEC alleged that LBRY conducted unregistered offerings of securities, which violated the Securities Act. The SEC successfully obtained a summary judgment, establishing LBRY's liability for the violation.
Following the summary judgment, LBRY filed a motion to limit the remedies sought by the SEC. LBRY argued for a nominal civil penalty of $50,000, considering that the violations did not involve fraud and were solely related to the failure to register the offerings. However, the SEC requested a civil penalty of $111,614 and an injunction to restrain LBRY from future violations of the Securities Act.
The court carefully considered the arguments from both LBRY and the SEC regarding the appropriate remedies. It determined that both an injunction and a civil penalty were warranted in this case. The court emphasized that LBRY's violations went beyond a simple failure to register and involved actions that were more egregious in nature. LBRY's unregistered offerings continued even after the lawsuit was filed, which demonstrated a risk of future violations.
Regarding the injunction, the court decided that LBRY should be permanently enjoined from violating Section 5 of the Securities Act and from participating in unregistered offerings of crypto asset securities in the future. However, the court did not find sufficient evidence to justify enjoining LBRY's subsidiary, Odysee, as LBRY provided evidence showing a distinct organizational structure and operations for Odysee.
In terms of the civil penalty, the court agreed with the SEC that a first-tier penalty of $111,614, which was at the upper end of the statutory range, was appropriate. The court considered LBRY's arguments that it lacked scienter and entered the cryptocurrency market during a time of regulatory uncertainty. Nonetheless, the court concluded that the maximum statutory amount was necessary to deter LBRY and others from conducting unregistered offerings while taking into account LBRY's representations regarding its financial situation.
In conclusion, the court granted the SEC's motion for remedies, issuing a permanent injunction against LBRY and ordering a civil penalty of $111,614. The court determined that LBRY's actions were more egregious than a simple failure to register and justified both the injunction and the civil penalty.