Alexander Savenkov A judge in the United States is currently evaluating whether the cryptocurrencies developed by Terraform Labs should be classified as securities. The failed blockchain company, along with its founder Do Kwon, has requested the dismissal of a case filed by the U.S. Securities and Exchange Commission (SEC). The SEC alleges that Terraform Labs and Do Kwon defrauded investors by selling unregistered securities.
Judge Examines Digital Assets Sold by Terraform in SEC’s Fraud Case
In a New York court, a judge is reviewing the status of the digital coins issued by Terraform Labs as part of the SEC’s ongoing case against the crypto firm. The defendant, Kwon Do-Hyung, also known as Do Kwon, is the South Korean co-founder and CEO of Terraform Labs.
Earlier this year, the SEC accused the crypto entrepreneur and his company of defrauding investors by selling billions of dollars’ worth of digital assets that are considered unregistered securities by the commission.
The value of the relevant cryptocurrencies, namely the stablecoin terrausd and the token luna, experienced a collapse in May 2022. This crash had a cascading impact on the Terraform ecosystem and the wider crypto markets. It is estimated that approximately 200,000 individuals had purchased these coins.
According to the SEC’s complaint, Terraform Labs and its founder allegedly misled investors about the stability of the U.S.-dollar pegged stablecoin. The regulator also claims that they made false promises regarding the tokens’ potential for value appreciation, as reported by Reuters.
Terraform Labs and Do Kwon are now seeking the dismissal of the SEC’s case, asserting that the digital currencies offered on their platform do not fall under the existing definition of securities in the United States. Additionally, they argue that the SEC lacks authority over the crypto industry.
During the recent hearing, Judge Jed Rakoff questioned whether Terraform’s Anchor protocol, which guaranteed up to 20% returns on terrausd deposits, should be classified as a security. He remarked:
“It is something you created, that only people who had taken this first step could take advantage of. I don’t see why that’s not a securities contract at that point.”
Judge’s Decision on Terraform’s Request for Case Dismissal Expected in Coming Weeks
Judge Rakoff has announced that he will deliver a ruling on the motion to dismiss the case in the U.S. District Court for the Southern District of New York by July 14. During the hearing, SEC Attorney Devon Staren emphasized that the commission is not pursuing any new approach but simply applying existing securities laws.
Last week, the SEC initiated legal proceedings against major crypto exchanges Binance and Coinbase, asserting that several tokens listed on these platforms are unregistered securities.
Do Kwon, who disappeared following the crash of Terraform’s cryptocurrencies last year, was apprehended in Montenegro on March 23 of this year while attempting to flee to Dubai with a counterfeit Costa Rican passport. He is currently facing trial in the small Balkan nation for traveling with falsified documents. Both South Korea and the United States have requested his extradition.
Feel free to share your thoughts on the expected outcome of the SEC’s case against Terraform Labs and Do Kwon in the U.S. in the comments section below.
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Frequently Asked Questions (FAQs) about Terraform Labs
What is the SEC case against Terraform Labs about?
The SEC case against Terraform Labs involves allegations of fraud and the sale of unregistered securities. The SEC claims that the company and its founder, Do Kwon, misled investors about the stability and value of the digital assets they sold.
Are the cryptocurrencies created by Terraform Labs considered securities?
A judge in the United States is currently reviewing whether the cryptocurrencies developed by Terraform Labs should be classified as securities. The SEC argues that they are unregistered securities, while Terraform Labs and Do Kwon contend that they do not fit the existing definition of securities.
What was the impact of the collapse of the Terraform ecosystem?
The collapse of the Terraform ecosystem, caused by the crash of the stablecoin terrausd and the token luna, had a domino effect in the crypto markets. It affected approximately 200,000 people who had purchased these coins.
When will the judge rule on the case?
The judge, Jed Rakoff, has stated that he will rule on the motion to dismiss the case by July 14. The decision on whether the SEC’s case against Terraform Labs and Do Kwon will proceed will be made in the coming weeks.
What is the status of Do Kwon, the founder of Terraform Labs?
Do Kwon, who disappeared after the crash of Terraform’s cryptocurrencies, was arrested in Montenegro on March 23. He is currently facing trial in Montenegro for traveling with falsified documents, and both South Korea and the United States are seeking his extradition.
More about Terraform Labs
- SEC Charges Terraform Labs and Founder for Fraudulent Securities Offering
- Judge Considers Whether Terraform Labs’ Cryptocurrencies Are Securities
- Terraform Labs Founder Arrested in Montenegro
- SEC Takes Legal Action Against Binance and Coinbase
