Terraform Labs Seeks to Throw Out Class Action Lawsuit: Details

According to recent reports, Terraform Labs is trying to get a class action lawsuit against the company dismissed, claiming that the U.S. securities regulations addressed in the case do not apply to its foreign-developed standards. 

Terraform Labs Seeks to Dismiss Class Action

Terraform Labs asked a federal judge in California to dismiss an investor litigation filed by Nick Patterson, who alleged the business offered securities that were not registered and deceived investors, on May 3. 

This class action was launched in June 2022, alleging that the Terra tokens (UST and LUNA) were securities, among other things.

US Securities Regulations Not Relevant

Dentons, the firm’s lawyers, maintained that the federal securities regulations weren’t relevant since the procedures were designed and implemented outside of the United States.

Terraform’s dismissal request, according to Law360, also stated that federal securities regulations and the mail and wire fraud allegations in the action only applied domestically. It states: “The federal securities laws do not apply because the SAC [Second Amended Complaint] does not allege that any of the protocols at issue were developed domestically.”

Same Logic for RICO Case

As explained by Terraform, the same rationale goes for the suit’s RICO (Racketeer Influenced and Corrupt Organisations) complaints, which stated the firm’s mission intended to gain profits at the cost of individual investors. 

It stated that Nick Patterson, who initiated the complaint on behalf of investors, did not effectively prove that the charges of fraud by mail and wire happened domestically. Also, the complaining party failed to determine the location of digital wallets storing his Terra tokens, therefore contradicting any “domestic injury” allegations.

DoJ Opens a Case into Terraform Labs

The Wall Street Journal reported in March that the US Department of Justice (DOJ) had opened a case into Terraform Labs complying with the collapse of its stablecoin, TerraUSD (UST). 

The similar case was reported in February when the United States Securities and Exchange Commission (SEC) fastened its crypto fraud chase by filing a lawsuit against Terraform Labs and its co-founder, Do Kwon over fraud allegations.