Terraform Labs Seeks to Dismiss Class Action Arguing US Laws Don’t Apply

Terraform Labs is attempting to have a class action lawsuit against the company dismissed, claiming that the securities laws addressed in the case do not apply to its foreign-developed protocols. 

On May 3, Terraform Labs asked a federal court in California to dismiss an investor litigation filed by Nick Patterson, who claimed the business issued unregistered securities and deceived investors.

Dentons, the firm’s lawyers, maintained that federal securities laws did not apply since the procedures were designed and implemented outside of the United States. The Terra/Luna ecosystem imploded in May 2022, wiping away billions of dollars from cryptocurrency marketplaces. Following the crash, many lawsuits have been filed against the company, associated entities such as the Luna Foundation Guard, and company founder Do Kwon.

This class action was launched in June 2022, alleging that the Terra tokens (UST and LUNA) were securities, among other things. Terraform’s dismissal request, according to Law360, stated that federal securities laws and the mail and wire fraud allegations in the action only applied domestically.

“The federal securities laws do not apply because the SAC [Second Amended Complaint] does not allege that any of the protocols were developed domestically.” According to Terraform, the same rationale applies to the suit’s RICO (Racketeer Influenced and Corrupt Organizations) charges, which stated the firm’s mission was to harvest profits at the cost of regular investors.

It stated that Nick Patterson, who initiated the complaint on behalf of investors, did not effectively prove that the charges of mail and wire fraud happened domestically. According to Terraform, the plaintiff failed to specify the location of digital wallets storing his Terra tokens, which defeats any “domestic injury” allegations.

The Securities and Exchange Commission sued Terraform and Do Kwon in February, alleging that they organized a multibillion-dollar securities scam. A South Korean court declared in April that LUNA does not qualify as a security under the country’s Capital Markets Act.

Terraform Labs co-founder Hyun-seong Shin and nine others linked with the company were charged in South Korea on April 25. After nearly a year of investigation, they were reportedly indicted on fraud, breach of trust, and embezzlement charges and referred to trial.