Judge rules Terraform Labs violated rules: LUNA and MIR deemed securities

• Federal Judge Rakoff rules $LUNA and $MIR as securities, finding Terraform Labs violated U.S. laws.
• SEC trial, scheduled Jan 29, 2024, centres on Terra’s UST stablecoin collapse and $25M alleged fraud.
• Jump Trading’s involvement adds complexity; the SEC insists Judge Rakoff, not a jury, decides securities status.

In a recent legal development, Federal Judge Jed Rakoff ruled in favour of the U.S. Securities and Exchange Commission (SEC) against Do Kwon and Terraform Labs. The judgment asserts that Terraform violated U.S. securities laws by selling unregistered securities, specifically LUNA and MIR tokens.

This decision sets the stage for a trial scheduled to commence on January 29, 2024, shedding light on alleged fraudulent activities and the involvement of the SEC.

LUNA and MIR tokens deemed securities

In the summary judgment, Federal Judge Jed Rakoff sided with the SEC in the case against Do Kwon and Terraform Labs. The ruling established that Terraform failed to register LUNA and MIR tokens as securities, concluding that the company violated U.S. securities laws. This aligns with the SEC’s stance that cryptocurrencies, including LUNA and MIR, should be classified as securities, subject to the agency’s regulation.

Judge Rakoff’s decision restricts the SEC’s regulatory authority to LUNA and MIR, marking a significant point in the ongoing legal battle. The charges stem from the collapse of Terra’s UST stablecoin in 2022, with the SEC alleging that a fraudulent security offering raised $25 million.

Jump Trading’s role and SEC’s position

New evidence presented by Jump Crypto adds complexity to the case. Jump Crypto, believed to have manipulated TerraUSD, allegedly profited $1.28 billion. The SEC claims Terra loaned tokens to the U.S. trading firm Jump Crypto further entwining the lawsuit with market manipulation accusations.

In a noteworthy move, the SEC has requested that Judge Rakoff determine whether Terraform offered and sold unregistered securities, arguing against a jury decision. The agency contends that the classification of securities is a legal matter for the court, not a factual question for a jury.

While the civil trial progresses, Do Kwon remains in a Montenegro prison, after successfully appealing his extradition to the U.S. for criminal charges. As the legal saga unfolds, the trial’s outcome will have implications for classifying and regulating cryptocurrencies, particularly LUNA and MIR, in the ever-evolving landscape of financial markets.