In a significant legal development, a US District Judge has ruled that LUNA and UST, two prominent assets within the Terra ecosystem, are unregistered securities.
This decision represents a major win for the United States Securities and Exchange Commission (SEC) in its ongoing battle against Terraform Labs and Do Kwon.
The verdict has sent shockwaves through the cryptocurrency community, raising concerns about the future of digital assets and the SEC’s growing influence in the industry.
Read Also: Terra Founder Do Kwon Allegedly Moved $29 Million Worth of Crypto Out of LFG Wallet After Arrest
Unveiling the Security Skeletons in Terra’s Closet
The SEC’s case against Terraform Labs and Do Kwon alleges a deliberate deception. According to the commission, Terra marketed LUNA and UST, among other crypto assets, as unregistered securities.
The court found weight in a statement made by Do Kwon, where he expressed confidence in Terra’s efforts, which the court interpreted as a promise of profit. This statement played a crucial role in solidifying the court’s view that investors in LUNA and UST were participating in a shared enterprise rather than simply speculating on digital tokens.
A Partial Victory, But the Jury Is Still Out
While the SEC celebrates this victory, the legal battle is not over. Judge Rakoff dismissed charges related to security-based swaps and fraud, deeming them complex and requiring further examination. These charges will be decided by a jury in an upcoming trial.
The outcome of these remaining charges adds an element of suspense to the case. If proven, the fraud charges could have severe consequences for Terra, potentially resulting in substantial penalties.
On the other hand, a jury ruling in Terra’s favor on the fraud claims could cast doubt on the entire securities argument, challenging the SEC’s regulatory ambitions in the crypto space.
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Read Also: Do Kwon Accuses FTX Founder of Manipulating Terra (LUNA) and UST Prices, Others Share Evidence
Echoes of Ripple and the SEC Power Play
The Terra case bears similarities to the ongoing legal dispute between the SEC and Ripple, where the classification of XRP as a security is fiercely contested.
Although Judge Rakoff denied Terra’s attempt to use the Ripple ruling as a defense, the parallels between the cases are evident. This ruling, combined with the SEC’s recent classification of ADA and SOL as securities, indicates an increasingly assertive regulatory landscape for digital assets.
The verdict in the Terra case serves as a chilling precedent for the cryptocurrency industry, highlighting the regulatory uncertainty that looms over the sector. With the SEC wielding the “securities” label as a powerful tool, both innovators and investors are left grappling with the question of what lies ahead.
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