A New York judge sided with the Securities and Exchange Commission in its claim that Terraform Labs and its co-founder Do Hyeong Kwon offered and sold unregistered securities.
Judge Jed Rakoff in the U.S. District Court for the Southern District of New York granted summary judgment for the SEC on that claim, while also siding with Terraform "on the claims involving offering and effecting transactions in security-based swaps," according to an order filed on Thursday.
"There is no genuine dispute that UST, LUNA, wLUNA, and MIR are securities because they are investment contracts," Rakoff said.
The court denied motions from both sides for a summary judgment on fraud claims, which will now go to a jury, according to the filing.
The SEC charged Terraform Labs and its CEO Do Kwon in February over its algorithmic stablecoin Terra USD, which collapsed in a dramatic fashion last year. The agency said Kwon and Terraform orchestrated a "multi-billion dollar crypto asset securities fraud" while also raising billions from investors by "offering and selling an inter-connected suite of crypto asset securities, many in unregistered transactions." That had included “mAssets,” which the SEC said earlier this year are security-based swaps designed to pay returns by mirroring the price of U.S. company stocks as well as the infamous Terra USD.
Algorithmic stablecoins, like Terra USD, use market incentives via algorithms to maintain a stable price. Terra was linked to Luna, a governance token, to keep the prices stable. Terra USD crashed in May, wiping out billions.
A jury trial for remaining claims in the suit is set to begin on Jan. 24, 2024.
"We strongly disagree with the decision and do not believe that the UST stablecoin or the other tokens at issue are securities," a Terraform Labs spokesperson said in an email to The Block. "Further, the SEC’s fraud claims are not supported by evidence, and we will continue to vigorously defend against those meritless allegations at trial."
(Updates with comment from Terraform Labs.)
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