US Federal Judge Issues Summary Judgment in Civil Lawsuit against Terraform Labs and Founder Do Kwon, Supporting SEC’s Argument that Terraform Illegally Sold Unregistered Cryptocurrency “Securities” LUNA and MIR.
Last May, the public blockchain Terra, its developer Terraform Labs, and founder Do Kwon were officially sued by the US Securities and Exchange Commission (SEC) in a civil lawsuit, accusing the defendants of orchestrating the fraudulent sale of “securities” in the form of cryptocurrency assets, in violation of federal securities and trading laws.
Now, a US federal judge has issued a key summary judgment in favor of the SEC. According to Cointelegraph, Judge Jed Rakoff of the Southern District of New York ruled in a document on the 28th that Terraform Labs and Do Kwon provided and sold unregistered “securities” LUNA and MIR (governance tokens of the Mirror Protocol), thereby violating federal securities law.
The judge stated that LUNA and MIR indeed meet the Howey test, which determines whether an asset qualifies as a security. “People can invest their ‘money’ in a common enterprise and expect profits solely from the efforts of the promoter or a third party, namely Terraform and Do Kwon.”
It should be noted that a summary judgment is a simplified decision made by the court without a full trial, based on the overall circumstances of the case or specific issues within the case. However, this lawsuit is not yet fully concluded and further proceedings will follow.
Furthermore, the judge dismissed the SEC’s accusation of the defendants engaging in unregistered securities “swap” transactions. The judge ruled that Terraform’s “mAssets” do not constitute securities-based swaps because investors need to maintain collateral levels higher than the reference stock’s price, and the SEC failed to demonstrate how any financial risk could be transferred to the counterparty in the transaction, thus not meeting the statutory definition of securities-based swaps.
Additionally, the court rejected motions from both parties for a summary judgment regarding the SEC’s fraud allegations. The judge ruled that the fraud charges against Terraform Labs must be tried by a jury, and the civil trial is scheduled to begin on January 29th at the Manhattan Federal Court.
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Lawyer: It’s Difficult to Classify LUNA as a Security, High Probability of Do Kwon’s “Not Guilty” Release if Returning to South Korea
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