US Judge Sides With SEC In Case Against Terra And Do Kwon
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A federal judge in the United States has ruled in favor of the US Securities and Exchange Commission (SEC) in a case against Terraform Labs and founder DO Kwon.
The case claimed that Terraform Labs and Do Kwon offered and sold two unregistered securities. US District Court Judge Jed Rakoff found probable cause in the SEC’s arguments regarding the TerraUSD stablecoin and LUNA crypto token collapse.
Court Claims LUNA and TerraUSD Are Securities
According to the court, Terraform Labs and Do Kwon offered various crypto tokens such as LUNA, TerraUSD, and Mirror, ranked as securities. The judge also granted summary judgment for the defendants on allegations that the company offered unregistered security-based swaps.
According to the SEC, mAssets sold on the Mirror Protocol were security-based swaps. However, the court dismissed this argument, saying that mAssets failed to meet the statutory definition.
The decision by Judge Rakoff revolved around the Howey test, saying that LUNA met the criteria to be defined as an investment within a common enterprise with an expectation to make profits from the efforts of a promoter or third party.
The court also said that MIR token holders believed they could generate profits from the efforts of Terraform Labs to create and maintain the Mirror Protocol.
The court also denied the motions of both Terraform Labs and Kwon to dismiss the testimony of two SEC experts. A motion by the SEC to exclude testimony from a defense expert was also rejected.
Terraform Labs and Do Kwon are also facing fraud charges. These charges will be determined in a trial in January 2024. The jury selection process will happen on January 24, 2024.
Terraform Labs Could Appeal Ruling
Terraform Labs could appeal the SEC’s ruling, with a spokesperson saying they disagreed with the decision made by the court.
The argument made by Terraform Labs claims that the SEC did not provide ample evidence supporting its claims. The co-founders have also said that cryptocurrencies like Terra Classic and TerraClassic USD failed to meet the criteria to be classified as securities.
Kwon and the legal team behind Terraform Labs have also claimed that the SEC deemed some of the allegations baseless. They refuted claims that they transferred millions of dollars secretly into Swiss personal accounts for their gain.
