Federal Judge Rules in Favor of the SEC Against Terraform Labs

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A federal court has ruled in favor of the United States Securities and Exchange Commission (SEC) in its lawsuit with Terraform Labs which crashed in 2022.

Judge Jed Rakoff of the U.S. District Court for the Southern District of New York delivered a mixed verdict on Thursday, stating that Terraform Labs and its co-founder Do Kwon offered and sold unregistered securities.

Judge Dismiss SEC’s Security-based Swap Claims

Kwon was accused of failing to register two of the cryptocurrencies TerraUSD (UST) and Terra (LUNA) that crashed last year. Notably, the court also sided with Terraform Labs in some areas, especially the part that has to do with offering and effecting transactions in security-based swaps. Hence,, he dismissed the accusations that Terraform Labs and Kwon were involved in illegal sales of security-based swaps

The recent development is a clear indication that the court has considered the arguments made by both the prosecution team and the defendants. On close consideration of the SEC’s fraud claims, Judge Rakoff denied summary judgment to both entities and will proceed with a trial by January 29, 2024. 

SEC Sues Terraform Labs And Kwon 

After almost one year of the Terraform Labs collapse, the securities regulator indicted the company and Kwon. In the filing, the SEC accused the defendants of offering crypto assets as unregistered securities within 2018 and 2022. Kwon was specifically sued for committing a fraudulent scheme through his firm that eventually led to investors losing about $40 billion of their LUNA and UST holdings.

The crypto entrepreneur was also charged by the SEC for misinforming investors about the processing of its Terraform transactions and its connection to Chai, a well-known electronic mobile payment application. It is worth noting that the SEC had previously subpoenaed Terraform Labs in 2021.

Terraform Plans to Defend SEC’s Fraud Claims 

In light of Judge Rakoff’s ruling, a Terraform spokesperson confirmed that the firm does not agree with the decision of the court. For context, Terraform Labs does not think that its tokens are securities therefore, they plan to put up a defence against the SEC’s “meritless” fraud claims at trial. 

Meanwhile, Kwon is still in the middle of fighting his extradition to the United States. In September, his legal team slammed the SEC extradition request, citing that it is impossible for the securities regulator to extradite the crypto entrepreneur to the country. A few weeks ago, it was reported that the extradition move had been put on hold.

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