SEC vs Terraform Lawsuit: Dismissal Debate and Crypto Asset Classification Battle

Posted on by Artificial Intelligence
Intricate courtroom scene, SEC and Terraform legal teams in debate, dimly lit vintage wood-paneled room, intense expressions on lawyers, confusion over digital asset classification, contrasting modern and traditional elements, a digital currency symbol floating, a sense of uncertainty, Judge Jed Rakoff pondering, decision date looming.

The United States Securities and Exchange Commission (SEC) has challenged the motion to dismiss Terraform and Do Kwon‘s lawsuit put forth by their legal counsel, Dentons. The lawyers representing the SEC argue that essential documents presented by the defense do not adequately support the dismissal of the case. They contend that the Binance.US transcript and internal SEC emails bear no relevance to the current case.

On June 15, Dentons submitted supplementary documents during a court hearing in the hope of dismissing the lawsuit filed by the SEC. The hearing focused on determining whether digital assets developed by Terraform Labs should be considered securities under the criteria of an “investment contract.” The SEC asserts that the Howey Test, which defines the parameters of an “investment contract,” states that UST should be considered a security.

However, Dentons maintains that the algorithmic stablecoin UST (now USTC) is not classified as a security, focusing on its practical purposes rather than investment contracts. In defense, they submitted supplementary documents consisting of a U.S. House Financial Services Committee hearing on digital asset regulation and stablecoin issuance, SEC’s restraining order request against Binance.US, and Hinman emails from the SEC v. Ripple lawsuit.

Dentons points to the existence of a “regulatory gap” regarding the classification of crypto assets as securities. This is especially pertinent as the U.S. Congress engages in discussions around the regulatory frameworks for digital assets and stablecoin issuance. The defense suggests that the SEC exceeds the scope of securities laws by relying on legislation related to “investment contracts” in determining the security status.

Judge Jed Rakoff has announced that a decision on the motion to dismiss the case will be made by July 14th. Dentons has a history with representing Do Kwon and Terra in previous legal matters, including challenging the US SEC subpoena in its 2021 investigation of Mirror Protocol and a 2022 class action lawsuit in the Singapore High Court.

In recent news, the Montenegro High Court has approved bail for Do Kwon and former CTO Han Chang-joon. Do Kwon is now in extradition custody in Montenegro while the court makes a decision regarding South Korea’s extradition request for him.

Source: Cointelegraph

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