Terraform Labs, known for its involvement with the UST stablecoin and LUNA cryptocurrency, has requested a New York judge. The company seeks a jury trial to determine the regulatory status of its tokens, diverging from the Securities and Exchange Commission’s (SEC) preference for a judicial ruling.
In February, the SEC filed a lawsuit against Terraform Labs and its co-founder, Do Kwon. The allegations centered on raising billions from investors through what the SEC termed “offering and selling an inter-connected suite of crypto asset securities, many in unregistered transactions.” This move sparked a contentious debate over the nature of these digital assets.
The Argument for a Jury Decision
Terraform Labs’ attorney, David Kornblau, emphasized in a letter to Judge Jed Rakoff the importance of a jury determining whether the SEC has convincingly proven that UST, LUNA, wLUNA, and MIR tokens are indeed securities. This request follows a precedent set in the 2021 Audet vs. Fraiser case, where a jury verdict was pivotal in determining the nature of four crypto assets. Consequently, Terraform Labs is leveraging this case to support its argument.
Contrary to Terraform’s position, the SEC argues that the uniqueness of the Audet vs. Fraiser case should not set a standard for jury involvement in such matters. The agency maintains that the facts clearly show Terraform Labs’ involvement in selling securities.
The outcome of this legal battle could have far-reaching implications for the cryptocurrency industry, especially regarding applying the Howey test to determine if a token is an investment contract.
Developments Around Terraform Labs’ Co-founder
Adding to the case’s complexity, Do Kwon, Terraform Labs’ co-founder, faced legal troubles. Arrested in Montenegro in March for using a fake passport, he was recently approved for extradition in late November. This development adds another layer to Terraform Labs’ legal challenges unfolding narrative.
Should the judge agree to Terraform Labs’ request, the case could set a significant precedent in how crypto assets are classified in legal terms. Whether these tokens are securities could influence the future regulatory landscape for digital assets, impacting how they are managed, traded, and perceived in the broader financial ecosystem.
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