Terraform Labs’ Implosion and the Judge’s Decision
Last year, Terraform Labs (TFL) experienced a major collapse, leading to investigations by government regulators in South Korea and the USA. While Korean authorities looked into TFL’s former C-suite and exchange operations, the company’s legal team in the US tried to leverage Ripple’s recent progress against the SEC. However, Judge Jed Rakoff was not convinced by their arguments.
Key Points:
- Judge Rakoff deemed tokens minted on the Terraform Blockchain as securities, based on the Howey test, which requires buyers to expect profits from the efforts of others.
- The Judge dismissed the argument that secondary-market purchasers were not buying securities, stating that they had the same expectation of profit.
- Judge Rakoff disregarded legal precedent and refused to differentiate between coins sold directly to institutional investors and those sold through secondary market transactions.
- This decision could have implications for Ripple Labs’ court case, as the SEC may quote Judge Rakoff’s ruling in their appeal against Judge Torres’ partial exoneration of Ripple Labs.
- If the SEC succeeds in using this ruling, Ripple may face a prolonged legal battle for several more years.
Hot Take:
Judge Rakoff’s decision to consider tokens minted on the Terraform Blockchain as securities and disregard legal precedent sets a potentially significant precedent in the crypto industry. This ruling could impact not only Terraform Labs but also Ripple Labs and future cases involving cryptocurrencies. It underscores the need for clearer regulatory frameworks to protect investors and ensure fair practices in the evolving world of crypto.