US Judge rules Terra-Related Crypto Assets are Securities
Nearly a year since the downfall of the Terra blockchain, the US Securities and Exchange Commission (SEC) has charged Terraform Labs and CEO Do Hyeong Kwon with fraud. The SEC alleges that Terraform Labs and Kwon were involved in a massive fraudulent scheme that included the sale of unregistered securities and deceptive security-based swaps.
Controversy over UST Asset and False Claims
The SEC’s main claim revolves around Terraform’s UST cryptocurrency, which was falsely marketed as being pegged to the US dollar. The SEC argues that the claim was misleading and concealed the fact that third-party intervention was required to maintain stability. Additionally, Terraform was accused of falsely claiming that a popular Korean mobile payment app, Chai, processed transactions using its blockchain, a claim that was later found to be replicated and not genuine.
Expert Testimonies and Verdict
Both sides presented expert witnesses to support their arguments. The court allowed the SEC’s experts, Dr. Bruce Mizrach and Dr. Matthew Edman, to testify, while rejecting the defendants’ experts. After thorough consideration, US District Judge Jed Rakoff ruled in favor of the SEC, granting summary judgment on the issue of unregistered securities offered and sold by Terraform Labs and Kwon.
Significance of the Decision
Judge Rakoff’s ruling has significant implications for the intersection of cryptocurrency and legal frameworks. While the defendants were granted judgment on transactions involving unregistered security-based swaps, the overall verdict supports the SEC’s position that certain Terra-related crypto assets are securities. The details of the settlement between the SEC and the involved parties remain confidential, under the protective order sanctioned by Judge Rakoff.
Hot Take: US Judge Sides with SEC in Terraform Labs Fraud Case
In a definitive ruling, US District Judge Jed Rakoff has favored the Securities and Exchange Commission (SEC) in a multi-billion-dollar fraud case against Terraform Labs and its founder, Do Kwon. The judge deemed several Terra-related assets as securities, satisfying the Howey test criteria. This decision marks an important turning point in the legal treatment of cryptocurrency and sets a precedent for the regulation of digital assets. It highlights the SEC’s commitment to maintaining investor protection and ensuring compliance within the crypto space.
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