Mixed Verdict on Security-Based Swaps
The United States District Court has ruled in favor of the Securities and Exchange Commission (SEC) against Terraform Labs and its former CEO, Do Kwon. This decision concludes that the entities were involved in the offering and selling of unregistered securities, explicitly targeting the cryptocurrencies LUNA and MIR.
Application of the Howey Test
However, the court presented a nuanced view on security-based swaps. The defendants received a favorable judgment regarding these swaps’ unregistered offer and sale. The focus was on Terraform’s Mirror Protocol, which allowed users to mint “mAssets,” mirroring real-world assets on the blockchain. The court disagreed with the SEC’s view that these mAssets constituted security-based swaps, concluding they did not meet the legal definition.
Expert Testimonies: A Decisive Element
Another critical aspect of the case was the court’s stance on expert testimonies. Concurrently, the SEC’s motion to exclude the testimony of defense expert Dr. Terrence Hendershott was rejected. However, the court allowed the depositions of the SEC’s experts, Dr. Bruce Mizrach and Dr. Matthew Edman, reinforcing the SEC’s position in the case.
SEC’s Fraud Claims Pending Trial
Despite these rulings, the court did not grant summary judgment for either party on the SEC’s allegations of fraud against Terraform Labs and Kwon. These claims, involving an alleged fraudulent cryptocurrency scheme that erased over $40 billion in market value in 2022, are set for a jury trial. The jury selection is scheduled for January 24, 2024, marking the next phase in this high-profile legal battle.
Hot Take: Outcome of the Pending Jury Trial Will Shape the Future of Cryptocurrency Regulation
This decision is significant in the ongoing scrutiny and regulatory efforts surrounding cryptocurrencies and blockchain enterprises. The outcome of the pending jury trial will be closely watched, as it could set precedents for future cases in this rapidly evolving field.
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