Terraform Labs Seeks Dismissal of SEC Suit, Citing Ripple Case as Precedent

• Lawyers for Terraform Labs and Do Kwon cite the recent Ripple ruling in their bid to dismiss an SEC lawsuit against them.
• In a separate move, Terraform’s lawyers request subpoenas to secure wallet information for their defense against the SEC.

The recent partial win for Ripple in its ongoing legal wrangle with the U.S. Securities and Exchange Commission (SEC) has inspired lawyers for Terraform Labs and co-founder Do Kwon to attempt a similar strategic maneuver. They’re seeking to leverage that ruling to dismiss an SEC case arising from the demise of the algorithmic stablecoin UST.

Ripple Ruling: A Beacon for Terraform Labs

This move underscores the potential influence of the Ripple case ruling on a wider range of crypto-related legal matters. However, the effectiveness of Terraform and Kwon’s legal strategies remains uncertain.

In a motion to dismiss filed in New York, Kwon and Terraform’s lawyers argued that the Ripple ruling

“establishes the legal weakness of the SEC’s claim that UST, LUNA, wLUNA, MIR, and mAssets were securities due to their alleged method of sale.”

Back in February, the SEC, in its lawsuit, labeled the algorithmic stablecoin and its sister-token LUNA as unregistered securities. The lawsuit accused Terraform and Kwon of promoting these “crypto asset securities to profit-oriented investors,” repeatedly promising an increase in token value.

The motion to dismiss claims that the Ripple decision applies because the institutional sales of LUNA and MIR “were exempt from registration.” This would exempt them from Judge Analisa Torres’ ruling that Ripple’s institutional sales of XRP met the Howey test and were thus, securities offerings. Terraform’s lawyers argue that this element of the Ripple case debilitates the SEC’s allegations against UST, LUNA, wLUNA, MIR, and mAssets.

At the time of writing, the court has not yet made a public response to the dismissal motion.

In another interesting legal move this week, Terraform’s lawyers asked the court overseeing the FTX case to issue subpoenas to FTX Trading and West Realm Shires. They aim to use FTX’s wallet, account, and asset records to prove their non-liability in the UST collapse.

Specifically, they seek information on wallets used by Jump Trading to trade UST and LUNA during specific periods in 2021 and 2022. They are also after wallets and assets “used by short sellers” within a particular timeframe, and other wallets or accounts potentially used by these or other short sellers, spanning from January 2018 to the present.

With a trial set to commence on Nov. 30, Terraform’s lawyers have requested immediate access to this information if their order is granted. Meanwhile, Terraform Labs welcomed a new interim CEO, Chris Amani, this week, as Kwon serves a prison sentence in Montenegro.

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