In a significant legal development, U.S. District Judge Jed Rakoff has ruled that crypto entrepreneur Do Kwon and his company Terraform Labs breached U.S. law by failing to register two digital currencies that experienced a collapse in 2022.
The judge supported the Securities and Exchange Commission (SEC) in their claims, citing a failure to comply with regulatory requirements.
Despite dismissing SEC accusations of illegal security-based swaps, Judge Rakoff denied summary judgment for both parties on fraud claims, and the case is set to go to trial on January 29, 2024.
Terraform Labs strongly disagreed with the ruling, maintaining that its tokens were not securities. Kwon, facing fraud charges, resists extradition from Montenegro. The collapse of TerraUSD and Luna, losing an estimated $40 billion, also impacted other cryptocurrencies.
The SEC argues that four crypto assets, including TerraUSD and Luna, were unregistered securities, accusing Terraform and Kwon of misleading investors.
Despite acknowledging the classification of assets as securities, Judge Rakoff noted differing opinions on the defendant’s intent to defraud.
The SEC’s remedies for unregistered securities will be determined after resolving liability on fraud claims. The cryptocurrency industry denies its tokens are securities, citing a previous ruling in July favoring Ripple Labs.
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