Key takeaways:
- Terraform Labs, amidst an SEC securities lawsuit, filed for a summary judgment on December 4, 2023, aiming for a swift resolution.
- The defense cited the SEC’s alleged misrepresentation of facts in the DEBT Box case.
In a recent development in the civil case brought by the United States Securities and Exchange Commission (SEC) against Terraform Labs and its co-founder Do Kwon, the SEC’s legal team has urged the presiding judge to determine the classification of certain crypto assets as securities.
The SEC’s move aims to bypass a jury trial and have the judge decide whether Terraform Labs’ tokens meet the legal definition of securities, thereby falling under the regulatory purview of the SEC.
The SEC, in a court filing, emphasized that there is no dispute regarding the nature of the crypto tokens offered by Terraform Labs. According to the commission, these tokens involve investments tied to the company’s efforts, making it a legal question to be decided by the judge rather than a matter for a jury trial.
The SEC’s argument leans on the Howey Test, derived from the 1946 Supreme Court case SEC v. W.J. Howey Co., as a basis for determining whether the tokens should be classified as securities.
Legal teams representing Terraform Labs and Do Kwon have responded by taking steps to strengthen their defense in the face of mounting SEC allegations.
The move comes amidst growing concerns about SEC misconduct in a related regulatory lawsuit, casting doubt on the regulator’s actions in both cases. The SEC’s attempt to sidestep a jury decision highlights the critical issue of whether the tokens offered by Terraform Labs should be considered securities.
The SEC contends that the facts surrounding Terraform Labs’ crypto offerings are clear-cut—they involve an investment of money in a common enterprise with profits dependent on the efforts of others. These undisputed facts, according to the SEC, warrant the classification of the crypto tokens as securities.
In a related development, materials from Jump Crypto Holdings, the cryptocurrency division of Jump Trading, have been admitted into discovery in the federal court as part of the SEC’s lawsuit against Terraform Labs.
This move underscores the SEC’s broader efforts to categorize various cryptocurrencies as securities in lawsuits against industry players like Binance and Coinbase.
It’s worth noting that in a case against Ripple, a federal judge ruled in July that the XRP token did not necessarily qualify as a security. This ruling potentially opens the door for the SEC to reconsider charges against Ripple CEO Brad Garlinghouse and Executive Chair Chris Larsen.
