Crypto News: Judge Supports SEC Claims Against Do Kwon

Crypto News: Judge supports SEC charges against Do Kwon, opening a new front in crypto lawsuits

Crypto News: Do Kwon, a cryptocurrency entrepreneur, and Terraform Labs, his firm were found to have broken US law on Thursday when they neglected to register two digital currencies that crashed in 2022. In the litigation arising from the collapse of the TerraUSD and Luna currencies, U.S. District Judge Jed Rakoff in Manhattan agreed with the Securities and Exchange Commission.

In addition, Rakoff refused both sides' requests for summary judgment on the SEC's fraud allegations; these will now go to trial on January 29, 2024. SEC allegations that the defendants had sold security-based swaps unlawfully were rejected by him.

A representative for Terraform stated that the business will continue to fight the SEC's "meritless" fraud allegations in court and that it vehemently disagreed with the ruling. The firm also did not think that its tokens were securities.

The SEC did not respond right away. U.S. prosecutors in Manhattan have also accused Kwon, a native of South Korea, of fraud.

He was detained in Montenegro in March, just hours before the criminal fraud allegations were made public, and he has been fighting extradition to the United States from that country.

TerraUSD, a "stablecoin" with a fixed US$1 price, and Luna, a more conventional token with a variable value that was intimately connected to TerraUSD, were both created by Kwon.

In May 2022, TerraUSD's inability to sustain its US$1 peg caused both cryptocurrencies to lose an estimated US$40 billion or more.

Bitcoin and other cryptocurrencies saw a decline in value as a result of their collapse.

The SEC argued that because four of the defendants' cryptocurrency holdings including TerraUSD and Luna qualified as "investment contracts," they should not have been registered as securities.

Along with continually misrepresenting the stability of TerraUSD to investors, it also charged Terraform and Kwon with making false claims regarding the appreciation of their cryptocurrency.

"NO TRULY DISPUTE"

Rakoff concluded in a 71-page ruling that, by a 1946 ruling by the U.S. Supreme Court defining investment contracts, there was "no genuine dispute" that the four cryptocurrency assets qualified as securities.

In SEC v. WJ Howey Co., the Court decided that financial involvement in a joint venture whose returns would only come from the labor of others constituted an investment contract.

However, the judge also stated that reasonable juries could differ on whether the defendants' repeated claims regarding Terraform's business were meant to mislead investors or not.

These included claims regarding the temporary inability of TerraUSD to uphold its US$1 peg in May 2021 and the fact that a well-known Korean mobile payment app backed Luna's value by settling transactions on the Terraform network.

Rakoff stated that when the defendants' responsibility for the fraud allegations is settled, the SEC would decide on its remedies for the sale of unregistered securities.

The cryptocurrency market has vehemently refuted the idea that its tokens are securities.

It gained an advantage in July when a different federal court judge in Manhattan ruled that certain tokens offered by Ripple Labs did not meet the requirements for securities laws as buyers were unaware of whether their money was going to Ripple or other parties.

The case number for the Southern District of New York U.S. District Court case is 23-01346; it is SEC v. Terraform Labs Pte Ltd et al.