In a setback for Terraform Labs, U.S District Judge Jed Rakoff has pushed aside the company’s plea to dismiss a securities fraud lawsuit levelled against it by the Securities and Exchange Commission (SEC). Disregarding arguments about jurisdiction and the nature of the TerraUSD stablecoin, Rakoff’s ruling paves the path ahead for the SEC’s case.
While Ripple Labs found favor with another judge, it remains unechoed in this case, as the XRP token sales in comparison were decided non-violating of securities laws due to secondary market purchases. This, Judge Rakoff stated, presented no applicable distinction under the legal Howey test that discerns if crypto assets can be seen as securities.
What drew the judge’s attention were Terraform Labs’ bold, sweeping pitches. According to his observations, not only were retail investors drawn but also institutions were encouraged to purchase their crypto assets. In Judge Rakoff’s opinion, the fall in the TerraUSD’s value, losing its dollar peg, gave credence to the position that the token could be deemed a security necessitating registration.
Taking a hard stance against Terraform’s opposition to the SEC’s authority to regulate stablecoins sans clear Congressional approval, he upheld that the significant nature of the cryptocurrency issue called for the application of the “Major Questions Doctrine”, a measure to curb agency overextension into major political matters. Dismissing the notion, he concluded that the crypto asset market hardly met the criteria of being a ‘significant’ segment of the economy.
Passing judgment on the fraudulent charges, Rakoff stated that the SEC made a convincing case that Terraform and its founder, Do Kwon, had reasons to mislead investors about the utility of their crypto-assets, with allegations of doctored adoption data. He also stated that the case as proposed by the SEC about unlawful offering and sale of unregistered securities had enough backing.
This ruling brings to the forefront the ongoing tug-of-war between regulatory bodies and the crypto industry. Although this appears as a victory for the SEC, the industry continues to grapple with the evolving legalities and hurdles, leaving us to wonder if the future will bring more regulation or freedom for the blockchain sphere.
Source: Cryptonews
