SEC Celebrates As Court Labels Terraform’s Tokens As Securities

In a recent report, the United States Securities and Exchange Commission seems to have gained more ground in its enforcement approach towards digital assets firms as a New York district court hands down a ruling against the collapsed Terraform Labs, tagging the firm’s native tokens, LUNA and MIR, as securities to support the SEC’s allegations against the firm.

The longstanding legal brawl between the bankrupt Terraform Labs and the United States SEC has taken a new turn as Judge Jed Rakoff, who presides over the case at the Southern District Court of New York, ruled against the accused for violating securities regulations by not registering its native tokens, MIR and LUNA, as securities tokens under the SEC.

According to the summary judgment, the SEC has rightly accused Terraform Labs of infringing the US financial securities laws and is liable to be punished accordingly. This ruling has significantly impacted the ongoing lawsuit between the SEC and Terraform Labs.

SEC Gains Ground Through Court’s Summary Ruling

The latest development concerning the case reveals that Judge Jed Rakoff’s summary judgment favors the SEC as it claims Terraform Labs illegally sold crypto securities that were not certified by the SEC, which is in charge of financial securities in the country. This ruling has revalidated the SEC’s stance in the lawsuit, which the accused had initially denied. Despite its strong denial, the ruling explicitly stated that the defendant had breached the securities legislation by failing to register its native crypto tokens, LUNA and MIR, as mandated by federal decree as securities.

Furthermore, the summary judgment aligns with the SEC’s perception of classifying the majority of the cryptocurrencies that exist as securities to be regulated under them. However, the report revealed that the judgment only supported the SEC’s claims over MIR and LUNA alone, excluding it from other crypto tokens that Terraform controls.

Ruling Sets Up Terraform Labs for Trial

In addition, the summary ruling has aided in setting the stage for the SEC to motion for a trial to determine the magnitude of Terraform’s securities law infringement. This is because by pointing out Terraform’s illegality in selling registered security tokens, the Judge’s decision creates a framework for the potential trial.

More so, reports show that the Judge’s ruling prevented the two warring parties from denying third-party experts from expressing their perspectives on the possible trading activities that caused the de-pegging of UST, the algorithmic stablecoin issued by Terraform, in May last year. Hence, both the accused and the plaintiff would be allowed to present their expert witnesses to testify to the trading activities they think brought about the UST failure. 

Each party’s testimonies would play important roles in the potential trial as it is expected to shed more light on the incident that led to UST instability and eventual crash. More so, the overall outcome would determine the next line of action of the SEC on the case.

Terraform Labs Disagrees With Summary Judgement

Additionally, the report stated that the ruling prevented Terraform Labs from presenting two of its defense witnesses in the trial. One of these testifiers was reportedly going to talk about the activities in the custodial wallets of Terraform, and the second witness was set to discuss the crypto firm’s economy. The court has weakened Terraform’s defense by preventing the two witnesses, and this decision might have a significant impact on the crypto firm during the trial.

Meanwhile, Terraform Labs has strongly opposed the summary judgment’s decision. Issuing its response, the firm claimed that it does not believe its native tokens, including LUNA and MIR, should be categorized as security tokens. 

More so, a spokesperson representing Terraform Labs expressed the firm’s thoughts as they vehemently disagreed that any of their tokens match the description of a security token. He added that the SEC does not have tangible evidence to support the fraud allegations it laid on the crypto firm. In conclusion, he stated that Terraform Labs would continue to defend itself against the false accusations of the SEC at the upcoming trial.

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