Do Kwon Found Guilty As Case Moves to Trial By Jury
Do Kwon Found Guilty As Case Moves to Trial By Jury
It’s been a while since Do Kwon was caught in some tiny European nation trying to avoid authorities with a stash of events Bitcoin after the monumental collapse of TerraForm Labs that saw people attend his home as they lost life savings.
I was significantly impacted by the collapse also and am hopeful for some form of outcome or accountability against the former CEO.
His dumping of Bitcoin in a baseless attempt to regain the peg was a failed attempt that brought the entire crypto currency market to a collapse and it is still only just starting to recover.
The recent ruling in the U.S . Securities and Exchange Commission (SEC) vs. Terraform Labs case has sent ripples through the crypto currency space and setting a potential precedent for upcoming legal battles involving major players like Binance and Coinbase.
The case, involving allegations of unregistered securities sales against Terraform Labs and its former CEO Do Kwon, concluded with a mixed verdict that has significant implications for the broader crypto industry.
Summary of the Terraform Labs Case:
The case, filed by the SEC in February 2023 accused Terraform Labs and Do Kwon of engaging in a "multi-billion dollar crypto asset securities fraud" and offering unregistered securities. Specifically, the SEC focused on the sale of tokens such as LUNA, TerraUSD (UST) and Mirror (MIR) alleging that these tokens qualified as investment contracts.
On December 28, 2023, Judge Jed Rakoff of the U.S. District Court for the Southern District of New York granted a summary judgment in favor of the SEC on the claims of unregistered securities sales involving LUNA and MIR. The judge emphasized that UST, LUNA, wLUNA, and MIR were deemed securities as they met the criteria of investment contracts according to the Howey test.
However, the court provided a nuanced view on security based swaps ruling in favor of Terraform Labs regarding these swaps' unregistered offer and sale. The court's decision rested heavily on the Howey test which evaluates whether an asset qualifies as a security based on investment of money in a common enterprise with an expectation of profits from the efforts of others.
The Impact on Fraud Claims and Ripple's Influence
While the court resolved the issue of unregistered securities sales and fraud claims against Terraform Labs and Do Kwon will proceed to a jury trial on January 29. Interestingly, the case gained attention when Terraform Labs attempted to use the outcome of another SEC case against Ripple Labs as a precedent for dismissal. However, Judge Rakoff rejected this approach and emphasised the inconsistencies with the Howey test.
The Ripple case, which involved similar allegations of illegal securities offerings and saw a partial victory for both parties. The court ruled institutional sales of XRP as illegal securities but programmatic sales through exchanges were not considered securities. Terraform Labs hoped to leverage this decision to dismiss its own case, but Judge Rakoff deemed it incompatible with the Howey test.
SEC's Invocation in Binance and Coinbase Lawsuits:
The SEC's victory in the Terraform Labs case has already become a focal point in the ongoing legal battles against major crypto currency Centralised exchanges (CEX) like Binance and Coinbase. In a notice of supplemental authority submitted to the court but the SEC cited the Terraform Labs ruling to strengthen its position in the cases against Binance and Coinbase.
The SEC argues that the decision in the Terraform Labs case which classified UST and LUNA as securities only bolsters the definition of "investment contract" and supports its claims against Binance and Coinbase for trading unregistered securities.
The court's acknowledgment of the Howey test in the Terraform Labs case is likely to influence the regulatory stance on crypto assets and their classification as securities.
Stay Tuned As We Follow The Case
The outcome of the SEC vs. Terraform Labs case has far reaching implications for the crypto currency industry, particularly in how regulators approach the classification of digital assets. The nuanced rulings on security based swaps and the invocation of the Howey test provide a snapshot into the evolving legal landscape surrounding crypto currencies.
As the crypto community eagerly awaits (including myself) the jury trial on fraud claims in late January, the impact of this case on future regulatory actions and the classification of tokens as securities remains uncertain.
The SEC's strategic use of the Terraform Labs ruling in ongoing lawsuits against Binance and Coinbase suggests a proactive approach to shape the regulatory framework for the digital asset space. The industry will closely monitor these developments as they unfold and will most likely influence the trajectory of legal battles and regulatory scrutiny in the crypto currency market.
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Posted Using InLeo Alpha