Recently, a federal judge in the United States declared that Terraform Labs, the company behind the unsuccessful cryptocurrency brands Terra and Luna, had broken federal securities laws when it offered its products for sale to the general public.
In a summary judgement, U.S. District Court for the Southern District of New York Judge Jed Rakoff declared that Terraform Labs had neglected to register MIR, a different cryptocurrency in the Terra ecosystem, and LUNA as securities.
An eventual trial regarding Terraform’s securities violations may take shape as a result of the summary judgement. The attempts by both sides to have the testimony of opposing expert witnesses who have researched the trading activity that resulted in UST’s depegging in May 2022 excluded were rejected by Judge Rakoff.
However, the court excluded two additional defence witnesses: one would have provided the jury with an overview of Terraform’s cryptocurrency economy, while the other would have testified on activity in the company’s custodial wallets.
The decision is consistent with regulators’ claims that the majority of cryptocurrencies should be categorised as securities and be governed by the agency. However, the ruling by the court only acknowledges the SEC’s authority to regulate two cryptocurrencies: Luna and Mir. According to Terraform Labs, the tokens under consideration are not securities.
“We strongly disagree with the decision and do not believe that the UST stablecoin or the other tokens at issue are securities. Further, the SEC’s fraud claims are not supported by evidence, and we will continue to vigorously defend against those meritless allegations at trial,” Terraform Labs’ spokesperson said in a recent mail announcement.
Following a wave of similar complaints it filed against numerous other significant players in the cryptocurrency industry, the SEC sued Terraform Labs earlier this year. Only a few months had passed since the infamous depegging of Terraform Labs’ algorithmic stablecoin, UST, which sent the cryptocurrency market into deep freeze.