US Federal Judge Issues Preliminary Judgment in Civil Lawsuit Against Terraform Labs and Founder Do Kwon, Supporting SEC’s Argument that Terraform Illegally Sold Unregistered Cryptocurrency “Securities” LUNA and MIR.
(Meanwhile:
SBF Convicted, Next Up is Do Kwon! SEC Requests Judge’s Preliminary Judgment on Terra)
(Background:
Terra’s Rejection of Allegations Fails! SEC Can Continue to Prosecute Terraform Labs for Fraud)
In May of last year, the public blockchain Terra, which suffered a meltdown causing global investors to lose $40 billion and plunging the cryptocurrency industry into a cold winter, along with its developer Terraform Labs and founder Do Kwon, was officially sued by the US Securities and Exchange Commission (SEC) in February of this year. The SEC accused the defendants of orchestrating fraudulent “securities” in the form of cryptocurrency, violating the registration and anti-fraud provisions of US securities and exchange laws.
Now, a US federal judge has issued a key preliminary judgment in favor of the SEC in this case. According to Cointelegraph’s report, Judge Jed Rakoff of the Southern District of New York ruled in a document on the 28th that Terraform Labs and Do Kwon provided and sold unregistered “securities” LUNA and MIR (the governance token of the Mirror Protocol), thereby violating federal securities laws.
The judge stated that LUNA and MIR indeed satisfy the Howey test to determine whether an asset qualifies as a security, “People can invest their ‘money’ in a common enterprise with the expectation of profits solely from the efforts of the promoter or a third party, in this case Terraform and Do Kwon.”
Note: A preliminary judgment is a judgment made by a court in a simplified manner (i.e., without a full trial) for the parties involved, based on the facts of the entire case or individual issues in the case. However, this lawsuit has not yet reached a final conclusion and further trial results are expected.
Further reading:
The US Hunts for Luna: SEC Sues Do Kwon, Terraform Labs for Orchestrating “Securities Fraud”
A copy of the preliminary judgment document for Do Kwon and Terraform Labs provided by the court audience. Source: Cointelegraph
Official Trial for Do Kwon’s Fraud Case Scheduled for January Next Year
However, the judge dismissed the SEC’s allegation that the defendants engaged in unregistered securities “swap” transactions. The judge ruled that Terraform’s “mAssets” do not constitute securities-based swaps because investors need to maintain collateral levels above the reference stock price, and the SEC failed to demonstrate how any financial risks could be transferred to trading counterparts, thus not meeting the legal definition of securities-based swaps.
Note: Mirror Protocol’s mirror assets (mAssets) reflect the price of real-world asset models (such as US stocks), tracking the price changes of corresponding assets, allowing users to gain or lose from price fluctuations.
Additionally, the court also rejected the motion from both parties for a preliminary judgment on the SEC’s fraud allegations. The judge ruled that the fraud allegations against Terraform Labs must be heard by a jury, and the civil trial is scheduled to begin on January 29th at the Manhattan Federal Court.
Related Reports
SEC Leaks Crucial Private Messages from Do Kwon: “I Can Manipulate Trading Volume! As Long as You Don’t Tell, I Won’t Say…”
Do Kwon Refuses Extradition by the US SEC! Counters with “Impossible,” Preferring to Stay in a Montenegrin Jail Cell
Lawyer: It’s Difficult to Classify LUNA as a Security, High Probability of Do Kwon Being “Acquitted” if Returned to South Korea
Another Reversal! SEC Officially Sues Terra Development Company and Founder, Accusing Them of Violating Securities Laws in Creating and Promoting MIR
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Civil Lawsuit
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