- A U.S. federal judge has determined that Terraform Labs’ LUNA and MIR tokens are in violation of federal securities laws.
- The ruling aligns with regulators’ stance on cryptocurrencies being classified as securities, with implications for the wider crypto industry.
Understanding the Judgment In a landmark decision that’s sending ripples across the cryptocurrency world, a U.S. federal judge has declared that Terraform Labs, the company behind the controversial Terra and Luna cryptocurrencies, breached federal securities laws.
This ruling, handed down by Judge Jed Rakoff of the U.S. District Court for the Southern District of New York, marks a significant moment in the ongoing debate over the classification of digital currencies. The judge’s decision centers on Terraform Labs’ failure to register its LUNA and MIR tokens – integral parts of the Terra ecosystem – as securities, highlighting the increasing scrutiny facing cryptocurrency firms under U.S. law.
Details of the Court’s Decision
Judge Rakoff’s ruling emerged from a summary judgment, a crucial step that shapes the path to an eventual trial focusing on Terraform’s alleged securities violations. Interestingly, the judge permitted testimony from expert witnesses on both sides, who have analyzed the trading activities leading to the depegging of UST in May 2022. This inclusion of expert analyses could offer deeper insights into the complex dynamics of cryptocurrency trading and its regulatory implications.
However, the judge barred testimony from two defense witnesses – one poised to discuss Terraform’s custodial wallet activities, and another ready to explain the broader crypto economy under Terraform. These exclusions might narrow the scope of defense strategies at the trial stage.
Implications and Responses
The ruling aligns with the broader regulatory perspective that most cryptocurrencies should be considered securities, thus falling under regulatory oversight. However, this judgment specifically addresses only two tokens – Luna and MIR. In response to the ruling, a spokesperson for Terraform Labs expressed strong disagreement, insisting that the UST stablecoin and other tokens in question do not constitute securities.
The company also refuted the SEC’s fraud claims as unsupported and vowed to robustly defend against them. This legal skirmish is part of a larger narrative, as the SEC had previously sued Terraform Labs following a series of similar actions against prominent entities in the crypto sphere. The timing of this lawsuit is noteworthy, coming in the wake of the infamous UST depegging incident that plunged the crypto industry into turmoil.