Judge Rules LUNA and MIR As Securities, Says Terraform Violated Securities Laws

Published: Dec 29, 2023
Written By:
Vignesh Karunanidhi
Milk Road Writer

A federal judge ruled Thursday that Terraform Labs, the creator of the failed stablecoin TerraUSD and LUNA token, violated securities laws by selling tokens to public investors without registration. The judgment sets the stage for a fraud trial next month brought by the U.S. Securities and Exchange Commission.

Key Takeaways

  • Judge Jed Rakoff sided with the SEC, granting summary judgment that Terraform Labs illegally offered securities.
  • The ruling focused on the unregistered sales of native tokens LUNA and MIR.
  • It opens the door to a jury trial over Terraform’s alleged $40 billion fraudulent scheme, with claims over secret arrangements to artificially support TerraUSD’s $1 peg.

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Judge Dismisses Terraform Lab’s Bid To Dismiss the Case

In his Southern District of New York ruling, Judge Rakoff rejected Terraform Lab’s bid to dismiss the case and have expert witnesses barred. The judgment substantiates the core SEC argument. The SEC complaint, leaning heavily on whistleblower accounts, could turn on witness credibility before the jury when the trial commences on January 29.

Statements allege Terraform secretly arranged for trading firm Jump to restore TerraUSD’s dollar peg with a risky $200 million intervention. Attorneys must prove Jump knowingly propped up the failed stablecoin.

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The trial will reexamine how TerraUSD losing its 1:1 dollar peg set off a death spiral in May 2022, vaporizing $40 billion in investor funds. Prosecutors claim Terraform ran an unregistered securities scheme amid false marketing of TerraUSD’s stability.

Founder Do Kwon was also indicted for fraud in the U.S. but remains detained abroad. He faces related charges in South Korea. The collapse of the Terra ecosystem was one of the most catastrophic events in the cryptocurrency realm.

Vignesh Karunanidhi

Vignesh has been a seasoned professional in the crypto space since 2017. He has been writing for over 6 years and specializes in writing and editing various types of crypto content, including news articles, long-form pieces, and blog posts, all focused on sharing the beauty of blockchain and crypto.

Vignesh Karunanidhi
Milk Road Writer
Vignesh has been a seasoned professional in the crypto space since 2017. He has been writing for over 6 years and specializes in writing and editing various types of crypto content, including news articles, long-form pieces, and blog posts, all focused on sharing the beauty of blockchain and crypto.