Finally, the court dispensed with LBRY’s argument that it had been deprived of “fair notice” that its offerings were subject to the securities laws. In rejecting LBRY’s contention that the SEC’s suit constituted a “substantial change in its enforcement policy that was not reasonably communicated to the public” because LBRY did not conduct an ICO, the court held that the SEC’s theory fit comfortably within the bounds of prior caselaw, and noted that LBRY had no basis to assert it was unaware of Howey’s guidelines, even if it sold LBC tokens in a non-ICO context. At the end of the opinion, the court made a critical statement: “The SEC has not based its enforcement action here on a novel interpretation of a rule that by its terms does not expressly prohibit the relevant conduct. Instead, the SEC has based its claim on a straightforward application of a venerable Supreme Court precedent that has been applied by hundreds of federal courts across the country over more than 70 years.” Thus, according to the court, even if this was the first time the SEC had brought an action against an issuer of digital tokens that did not conduct an ICO, “LBRY is in no position to claim that it did not receive fair notice that its conduct was unlawful.” Thus, the court essentially adopted the rationale SEC Chairman Gary Gensler has espoused publicly, including before Congress, that token issuers should know whether they satisfy the Howey test (and that most do). Many issuers, however, may beg to differ.
‘Enforcement 40’ for 2020
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