SEC Says No to Jury Verdict, Calls for Summary Judgment on Terraform’s Violations

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The US Securities and Exchange Commission (SEC) is kicking against a jury’s lenient approach toward Terraform Labs’ alleged crimes. Making its position known, the SEC is advocating for a summary judgment instead.

$45 Billion Lost to Terraform Violations – Jury Verdict Unreasonable

The SEC, led by former blockchain professor Gary Gensler, has been hard at work towards bringing violators of securities law to book. Since 2020, the top US regulator has turned its sight towards the crypto ecosystem and filed several lawsuits against crypto-facing firms.

One notable case involves Terraform Labs and its co-founders, Do Kwon and Daniel Shin, who were accused of various crimes. However, the jury’s lenient stance on these allegations has not been accepted by the SEC.

According to a court filing on October 27, the Gensler-led agency said no rational jury would sidestep the $45 billion market loss suffered by crypto investors during the blockchain project’s collapse in May 2022.

Furthermore, the SEC asserted that Do Kwon could not be absolved of breaching the US Exchange Acts, especially since the project’s assets were actively bought and sold by US investors.

The SEC further stated that Terraform’s crypto assets were basically securities and were aggressively marketed as such to the public with promises of turning a profit from owning them. This situation warrants that Terra’s LUNA, MIR, and all other mirrored assets (mAssets) are treated as securities.

In addition, LUNA and MIR were offered in unregistered transactions, and both defendants committed fraud after they cashed out a sizable amount following the collapse of the crypto project. In the document, the amount withdrawn by the defendants was prominently redacted, meaning it is classified information.

As a result, the SEC firmly contends that a summary judgment is the only reasonable resolution for this year-old case, and both Terraform and Do Kwon should face charges for all of the claims.

In response, the accused has hit back at the SEC’s securities claims, asserting that the assets labeled “securities” lack sufficient evidence to support such classification. Hence, the court should dismiss the lawsuit against them.

In an October 27 counter filing with the US District Court for the Southern District of New York, the defendant’s legal team posited that the SEC has not been able to prove beyond any reasonable doubt that the accused committed fraud or sold securities, which the agency refers to as ‘stocks on chain.’

According to them, LUNA, MIR, and other debated cryptocurrencies are no closer to being securities as similar blockchain-based assets like Bitcoin and Ethereum.

Making their stand, the defendants stated that the securities regulator knew that some of its allegations were false, citing case in point, the SEC’s claims that Do Kwon and Terraform Labs secretly moved millions of digital funds to a Swiss bank account for their aggrandizement.

SEC’s Legal Defeats Concerning

The SEC has been the most active US regulator, taking steps towards providing oversight in the burgeoning crypto industry. While it has locked horns with several top crypto firms like Binance and Coinbase, amongst others, its success rate has been anything but insipid.

This growing list of legal defeats has come into public scrutiny in recent days. In a tweet on X (formerly Twitter), chief legal officer Stuart Adelroty of cross-border payment platform Ripple stated that the regulator’s lineup of losses was becoming a concerning trend.

This followed a court judgment by Judge Jerry E. Smith, stating that the SEC’s stock buyback rule was arbitrarily and capriciously made without proper context and benefit analysis.

Adelroty noted that this might depict that the SEC is fast overreaching its legal jurisprudence and needs to track back to its stated obligations.

About Jimmy Aki PRO INVESTOR

Based in the UK, Jimmy is an economic researcher with outstanding hands-on and heads-on experience in Macroeconomic finance analysis, forecasting and planning. He has honed his skills having worked cross-continental as a finance analyst, which gives him inter-cultural experience. He currently has a strong passion for regulation and macroeconomic trends as it allows him peek under the global bonnet to see how the world works.