The Securities and Exchange Commission (SEC) contends that LBRY, Inc. offered and sold unregistered securities in violation of Section 5 of the Securities Act of 1933. LBRY responds that it does not need to comply with the Securities Act because its alleged security, a blockchain token called LBC, is not a security at all. Instead, it argues that LBC functions as a digital currency that is an essential component of the LBRY Blockchain. LBRY also asserts that the SEC's attempt to treat LBC as a security violates its right to due process because the agency did not give LBRY fair notice that its offerings of LBC are subject to the securities laws. The parties have filed cross-motions for summary judgment addressing both issues.

The SEC identifies multiple statements by LBRY that it claims led potential investors to reasonably expect that LBC would grow in value as the company continued to oversee the development of the LBRY Network. LBRY minimizes the significance of these statements, and points to its many disclaimers that it did not intend for LBC to be purchased as an investment, but the SEC is correct. LBRY has - at key moments and despite its protestations - been acutely aware of LBC's potential value as an investment. And it made sure potential investors were too.

In August 2016, the COO of LBRY, Josh Finer, emailed a potential investor explaining that the company was “currently negotiating private placements of LBC with several [other] investors” and asked the recipient to write him back “if there is interest” so the two could “chat.” See COO Email, Doc. No. 59-7. The thrust of the email (subject line: “LBRY Credits Now Trading - LBC”) is clear. See id. After briefly noting that the platform was up and running, the COO explained how LBC are being traded on “major crypto exchanges” and that trading volume is moving at a healthy clip. See Id. The “opportunity is obvious,” wrote the COO, “buy a bunch of credits, put them away safely, and hope that in 1-3 years we've appreciated even 10% of how much Bitcoin has in the past few years.” Id. He wraps up by pitching LBRY's commitment to building its Network: “if our product has the utility we plan, the credits should appreciate accordingly.” Id.

LBRY also relies on the fact that it informed some potential purchasers of LBC that the company was not offering its token as an investment. But a disclaimer cannot undo the objective economic realities of a transaction.

From its inception, LBRY's profitability turned on its ability to grow the value of LBC by increasing usage of the LBRY Network.

The problem for LBRY is not just that a reasonable purchaser of LBC would understand that the tokens being offered represented investment opportunities - even if LBRY never said a word about it. It is that, by retaining hundreds of millions of LBC for itself, LBRY also signaled that it was motivated to work tirelessly to improve the value of its blockchain for itself and any LBC purchasers. This structure, which any reasonable  purchaser would understand, would lead purchasers of LBC to expect that they too would profit from their holdings of LBC as a result of LBRY's assiduous efforts.

Simply put, by intertwining LBRY's financial fate with the commercial success of LBC, LBRY made it obvious to its investors that it would work diligently to develop the Network so that LBC would increase in value. As LBRY said, “over the long-term, the interests of LBRY and the holders of Credits are aligned.”

Gab is selling shares.

The GAB Token will represent a single share of Class B Non-Voting Common Stock of the company

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Exchanges: GAB Tokens are intended to be listed for trading on [. . .] that are licensed by the SEC