United

Terra Classic

Mirror Protocol

The United States Securities and Exchange Commission (SEC) is moving forward with its lawsuit against Terraform Labs, as a U.S. judge overseeing the case denied the firm’s motion to dismiss on July 31. 
This legal battle began on February 16 when the SEC filed a suit against Terraform Labs and its founder, Do Kwon, accusing them of orchestrating a multi-billion dollar crypto asset securities fraud. 
Terraform Labs’ legal representatives tried to have the case dismissed in April, followed by additional materials supporting their motion in June. 
Judge Jed Rakoff of the Southern District Court of New York reviewed the arguments and found that, for the purpose of this motion, all well-pleaded allegations must be taken as true, and all reasonable inferences must be drawn in favor of the SEC. 
Terraform Labs had argued that the SEC lacked jurisdiction over the company and its founder. 
They also contested the agency’s classification of tokens like Mirror Protocol (MIR), Terra Classic (LUNC), and TerraUSD Classic (USTC) as securities. 
Terraform Labs further suggested that the SEC should wait for Congressional action on crypto regulation. 
However, Judge Rakoff rejected the claim that the SEC lacked the authority to regulate crypto tokens without Congressional authorization. 
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He also disagreed with Terraform Labs’ reliance on the “Major Questions Doctrine.” 
The judge extensively analyzed the Howey test, an important legal framework for determining whether an asset qualifies as a security. 
He emphasized that no formal contract is necessary to meet the Howey test, and tokens themselves may be considered securities in court arguments. 
Furthermore, Judge Rakoff rejected the idea of distinguishing between tokens like MIR and LUNA based on their manner of sale. 
This rejection contrasts with a similar case involving Ripple Labs Inc., where another judge had drawn such a distinction. 
The Ripple case involved the SEC’s claim that XRP was not a security when sold on the secondary market, which was partially accepted, providing Ripple with a partial win. 
With Judge Rakoff’s ruling, the SEC’s case against Terraform Labs continues, indicating that the court is not following the same approach as in the Ripple case. 
This ruling might have implications for future cases involving crypto assets and could set a precedent for the SEC’s regulation of the crypto industry. 
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U.S. Judge Denies Motion to Dismiss SEC Lawsuit Against Terraform Labs

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