U.S. District Court upholds SEC in lawsuit against Terraform Labs
“UST is an unregistered securityâ€
Judge Jed Rakoff of the U.S. District Court for the Southern District of New York announced on the 28th that the U.S. Securities and Exchange Commission (SEC) has filed a lawsuit against Terraform Labs, alleging that Terraform Labs offered unregistered securities. supported the claim.
Rakoff said:
There is no dispute that tokens such as UST, LUNA, wLUNA, and MIR are investment contracts and securities.
In February, the SEC sued Terraform Labs and its founder Do Kwon for securities fraud.
From April 2018 to May 2022, mAssets, which are designed to mirror the stock prices of US companies and pay returns, and the algorithmic stablecoin TerraUSD (UST), will be considered unregistered securities. It was alleged that he was providing and selling crypto assets (virtual currency).
It was also stated that after the old Terra ecosystem collapsed in May 2022, the defendant sent funds equivalent to 10,000 Bitcoin (BTC), which is worth approximately 60 billion yen at the time of writing, to a Swiss bank account. .
connection: US SEC sues former Terra founder Do Kwon for securities fraud
On the other hand, Judge Rakoff rejected the SEC’s argument, stating that “mAssets,†which mirror the stock prices of U.S. companies, cannot legally be considered “securities-based swap transactions†if you look at the terms strictly.
To meet the definition, the transaction between the parties must transfer financial risk regarding the asset’s value or future changes in value, but mAssets do not have these characteristics, it said.
What is a stablecoin?
Refers to a virtual currency whose price is always stable. Stablecoins are a type of crypto asset that, unlike volatile assets such as BTC, ETH, and XRP, are backed by currencies such as the US dollar and aim to maintain their value. In addition to stable coins backed by the US dollar (USDT/USDC), there are also stable coins that use algorithms.
Virtual currency glossary
connection: What is a stablecoin that even beginners can understand? Explaining its features and use cases
Defendant Do Kwon’s situation
Do Kwon was arrested in March at an airport in Montenegro on suspicion of attempting to travel with a false passport. A Montenegrin court is currently considering extradition to the United States.
A court in the country approved Kwon’s extradition last month, but the extradition was delayed after Kwon’s defense filed a motion to oppose it.
Kwon is also being pursued by prosecutors in South Korea and the United States on criminal charges including fraud. If convicted, Kwon could face more than 40 years in prison, said Dan Sung-han of the Financial Crimes Investigation Bureau of the Seoul Southern District Prosecutors’ Office.
South Korean investigative authorities also proceeded to place Kwon on the International Criminal Police Organization’s wanted list.
connection: Terra USD (UST) depegging scandal Summary of responses from Terraform Labs and exchanges
After the collapse of the old Terra ecosystem, regulatory authorities around the world became wary of stablecoins. Japan’s Financial Services Agency suggested in a presentation in December last year that it may tighten regulations on algorithmic stablecoins.
connection: Will the Financial Services Agency strengthen regulations on algorithmic stablecoins?
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