In a notable legal development, US District Judge Jed Saul Rakoff has granted summary judgment in favor of the Securities and Exchange Commission (SEC) in the case involving Terraform Labs and its CEO, Do Hyeong Kwon. The decision asserts that Terraform Labs breached US securities law by neglecting to register its digital assets, including UST and LUNA, as securities. This ruling represents a crucial juncture in the ongoing legal scrutiny surrounding the cryptocurrency industry.
Judge Rakoff’s Verdict
Presiding over the matter in the US District Court for the Southern District of New York, Judge Jed Rakoff affirmed the SEC’s contention that Terraform Labs, under the leadership of CEO Do Kwon, distributed and traded unregistered securities. While the court granted summary judgment to the SEC on this specific claim, it also acknowledged Terraform’s stance regarding matters related to offering and executing transactions in security-based swaps.
In an order filed on Dec.28, Judge Rakoff asserted,
“There is no genuine dispute that UST, LUNA, wLUNA, and MIR are securities because they are investment contracts.”
This definitive statement underscores the court’s determination that Terraform’s digital assets fall within the regulatory scope of securities.
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Ongoing Legal Landscape
While the SEC secured summary judgment on the issue of unregistered securities, both the SEC and Terraform Labs had their motions for summary judgment on fraud claims denied by the court. This development sets the stage for a jury trial to determine the outcome of the fraud allegations, signaling that the legal battle is far from over.
Background of SEC’s Allegations
The SEC initially filed charges against Terraform Labs and CEO Do Kwon in February, focusing on Terraform’s algorithmic stablecoin, Terra USD. The agency accused Kwon and Terraform of orchestrating a “multi-billion dollar crypto asset securities fraud.” The collapse of Terra USD last year played a central role in the SEC’s investigation.
According to the SEC, Terraform Labs raised substantial funds from investors by offering a connected suite of crypto asset securities, many of which were involved in unregistered transactions. Notably, the agency pointed to “mAssets” as security-based swaps designed to mimic the price of U.S. company stocks, in addition to the infamous Terra USD.
Implications for the Crypto Industry
The recent ruling by the New York judge injects a layer of regulatory clarity into the crypto industry, emphasizing the imperative of adhering to securities laws. As legal battles within the cryptocurrency space continue to unfold, this case against Terraform Labs establishes a precedent for accountability within the crypto sector. It also raises questions about the regulatory future of other digital assets and their categorization under securities laws.
The SEC’s success in securing summary judgment against Terraform Labs in the matter of unregistered securities represents a significant milestone in the ongoing regulatory efforts surrounding the cryptocurrency industry. As the legal proceedings advance, the resolution of fraud claims will be closely monitored.
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