Terraform Labs achieved a partial victory over December 28 in a case initiated by the United States Securities and Exchange Commission (SEC).
Judge Jed Rakoff granted summary judgment in favor of Terraform Labs and said the company did not offer or transact securities swaps.
Judge said the mAssets offered on the Terra-based mirror protocol satisfied most, but not all, of the requirements for security-based swaps. Specifically, he said these involve no transfer of financial risk due to mAsset’s collateral model: since users must add new collateral as prices rise, they bear the burden themselves. risk and not that of future changes, which invalidates the SEC’s complaint.
Judge Rakoff nonetheless issued another summary judgment that largely validated the SEC’s broader securities allegations. It ruled that there was “no real dispute” that various assets, including Terraform’s UST, LUNA, wLUNA and MIR tokens, were investment contracts and therefore securities. Additionally, it ruled that these sales were unrecorded and were a violation of securities law.
The judge noted that the SEC’s request for summary judgment did not mention any possible financial solutions. He said that will be determined after liability is established through another summary judgment.
Fraud claims will be resolved at trial
Regardless of the above rulings, the judge said the fraud allegations must be resolved at trial because these issues involve “genuine disputes over material facts.”
The SEC’s fraud allegations concern two issues. The first concerns a past depegging of Terra’s UST stablecoin. The SEC alleges that Terraform Labs co-founder Do Kwon entered into a deal with Jump Crypto to help UST recoup its prize money, even though Kwon publicly claimed that Terra’s algorithm alone was responsible for it. origin of the recovery.
The second question concerns whether Chai Corp., a South Korean payments company founded by Daniel Shin, co-founder of Terraform Labs, actually used the Terra blockchain as advertised. The SEC alleges that Do Kwon falsely represented Chai as processing and settling transactions on the blockchain.
The fraud trial will take place on January 29, 2024, according to the latest filing.