JUDGE: TERRAFORM LABS TRADED UNREGISTERED SECURITIES

A U.S. Court has delivered a significant ruling mostly in favor of the Securities and Exchange Commission (SEC) in its case against Terraform Labs, the now-bankrupt cryptocurrency platform. This decision contrasts with an earlier ruling in the Ripple case, where Judge Analisa Torres ruled that XRP, in most circumstances, is not a security.

Ripple’s Case Impacting Terraform Labs

Following Ripple’s relative success in its legal battle, Terraform Labs attempted to adopt a similar defense strategy. However, Judge Rakoff was not persuaded by their arguments. In a summary judgment, he ruled that TERRA and LUNA, Terraform Labs’ tokens, should be classified as securities. Terraform Labs retains the right to appeal this decision.

Judge Rakoff’s Ruling on Terraform Labs

The judge firmly stated that there was no genuine dispute about the nature of TERRA and LUNA tokens, emphasizing that they are investment contracts. He referenced the Howey test, a standard used to determine whether certain transactions qualify as investment contracts, and thus, securities.

Mirror Tokens Excluded from Securities Classification

Interestingly, the SEC’s lawsuit against Terraform Labs included MIR tokens, part of Do Kwon’s Mirror ecosystem, designed to mirror non-crypto assets on the blockchain. Judge Rakoff ruled that MIR tokens passed the Howey Test, meaning their profit potential was tied to the performance of the assets they mirrored, rather than the efforts of Terraform Labs.

Jump Trading’s Involvement

The judge also considered testimonies from former and current employees of Jump Trading, a firm heavily invested in Terraform Labs but not accused of any wrongdoing. These testimonies did not directly influence the ruling, but Judge Rakoff noted that they might be revisited later.

Upcoming Jury Trial

The case against Terraform Labs is set to proceed to a jury trial in January. This trial is expected to further delve into the complex issues surrounding the classification of cryptocurrencies as securities and will be closely watched by the crypto community and regulatory bodies alike.

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