The legal team representing Terraform Labs and Do Kwon, the founder of the imploded Terra blockchain, has referenced the recent victory recorded by Ripple and XRP against the SEC to support their bid for the dismissal of the regulatory agency’s lawsuit over Terra Classic (LUNC) and USTC collapse.
In a supplementary document filed on July 18, the lawyers pointed to Judge Analisa Torres’ decision in the SEC v. Ripple Labs case, where XRP was deemed not to be a security.
The defendants’ legal team argues that the SEC’s claims against tokens such as UST (now USTC), LUNA (now LUNC), wLUNA, and MIR lack merit, drawing parallels to the Ripple ruling. They contend that the sales of these tokens do not meet the criteria to be classified as investment contracts under the Howey test, similar to XRP.
The document further discusses the difference between institutional sales in the two cases. While Ripple’s institutional sales of XRP were deemed investment contracts, the defendants’ lawyers argue that the institutional sales of LUNA and MIR in the Terra case were exempt from registration and different in nature. They believe this discrepancy supports the dismissal of the SEC’s fraud and registration claims.
SEC Sues Terraform Labs and Do Hyeong Kwon
The SEC’s lawsuit against Terraform Labs and Do Hyeong Kwon was filed last February, alleging misconduct that led to the collapse of the Terra ecosystem in May. Additionally, Do Kwon and an associate were sentenced to four months in prison for falsifying travel documents in a separate legal matter. The SEC case remains active in the US, with South Korean authorities seeking Kwon’s extradition.
This reference to the XRP victory in the Ripple case is not the first strategic move by the defendant’s legal team. In a previous filing, they presented evidence regarding congressional debates over cryptocurrency regulation, suggesting that the SEC should wait for legislative action before enforcement.
The significance of Judge Analisa Torres’ ruling in the Ripple case extends to the ongoing litigation surrounding Terra. It strengthens the argument that the SEC’s case lacks a strong foundation and points out inconsistencies in the regulatory approach to different cryptocurrencies. Industry leaders anticipate that this XRP victory will set a precedent and be leveraged in challenging the SEC’s perceived overreach within the crypto industry.
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