May 23, 2024

The US Securities and Exchange Commission (SEC) requested a summary judgment from a federal judge on the lawsuit against Do Kwon and Terraform. The SEC stated that the move was to save everyone from the spectacle of a full trial deemed unnecessary.

In its request, the US securities regulator noted no concrete disputable fact in its suit against Terraform Labs and its co-founder, Kwon.

SEC Claims Evidence Of Violations Are Concrete For Summary Judgment

In a court filing on October 27, the SEC indicated its hesitancy to the jury’s conclusion concerning Terraform Labs’ alleged violations of securities laws. Notably, the jury’s verdict regarding Kwon and his actions in supporting frauds that triggered the implosion of the Terra ecosystem was lenient.

In the filed document, the SEC mentioned:

No rational jury could conclude that Kwon was not liable for Terraform’s violations of Exchange Act Section 10(b) and Rule 10b-5 thereunder pursuant to Exchange Act Section 20(a).

The SEC has provided evidence of violations indicating that Kwon took part in deceiving crypto investors, leading to massive loss of funds. According to the regulator, Kwon created and advertised Terra and its native token, LUNA, as securities.

The filing related how Terraform and Kwon operated fraudulently and gave misleading statements about their assets. They deceived investors regarding the stability of UST and manipulated the algorithm to front its price stabilization.

Also, the SEC mentioned that Kwon arranged third-party influence to facilitate his claims about the efficiency of the Terra algorithm. Additionally, he omitted vital information regarding the functionalities of the ecosystem to the public.

The regulator argued that Kwon and his company sold securities. It pointed out that the money they gathered in a common enterprise expecting gains majorly from the efforts of promoters satisfies the Howey test on such investments.

Notably, the Howey test is a legal determinant that proves whether a transaction meets the classification as an investment contract. If positive, the US federal law classifies such investments as securities. With such debate, the SEC demanded that the court’s ruling should be in its favor. Additionally, the regulator cited:

There is no dispute that purchasers made an investment of money, either through fiat currency or crypto assets.

Terraform Labs And Do Kwon Sought Dismissal of Fraud Charges

The SEC motion for summary judgment is coming after Terraform Labs and Kwon sought dismissal of the lawsuit. On the same day, lawyers for Kwon and Terraform filed a motion to the US District Court for the Southern District of New York.

The document asked for the dismissal of the SEC’s case against Kwon and Terraform.

The attorneys argued that Terraform tokens, TerraClassicUSD (USTC), Terra Classic (LUNC), Mirror Protocol (MIR), and mirrored assets (mAssets) are not securities. 

The defendants declared their innocence and challenged the securities regulator over its crypto stance and interpretations of facts.

The lawyers stated in the filing:

After two years of investigation, the completion of a discovery period that resulted in the taking of more than 20 depositions, and the exchange of over two million pages of documents and data, the SEC is evidentiarily no closer to proving that the Defendants did anything wrong.

Currently, the decision to dismiss the fraud charges or to move to a summary judgment lies in the hands of the federal judge. 

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