Lawyers for Terraform Labs (TFL) argued that the recent split verdict in the suit by SEC against Ripple was comparable to their own case and could void part of the charges, but U.S. District Judge Jed Rakoff rejected their arguments.
“The court declines to distinguish between coins based on how they are sold. … By doing so, we reject the recently adopted approach by another judge in a similar case”, the document states.
SEC filed suit against Ripple in 2020, accusing the company of distributing unregistered securities worth about $1.3 billion in the form of tokens.
On July 13, 2023, Judge Analisa Torres ruled that selling XRP directly to institutional investors violated the SEC’s rules, while offerings to retail investors on exchanges did not.
Rakoff also rejected other attempts by Terraform Labs and its former head, Do Kwon, to dismiss the suit. Lawyers sought to invoke the Major Questions Doctrine, which states that regulators cannot act in economically significant areas without Congress’s approval.
“Applying this standard, the cryptocurrency industry — while undoubtedly important — is absolutely not a ‘part of the American economy’ with ‘massive economic and political significance,’” the judge countered.
Rakoff noted that the SEC had put forward plausible evidence that Terraform’s digital assets and their sale fall under the definition of securities.
However, TFL managed a narrow win: the court allowed the company to obtain information about wallets and accounts FTX. The firm’s lawyers argued that a “coordinated short attack” involving the collapsed crypto exchange led to the depeg of the UST algo-stablecoin algo-stablecoin.
Earlier in June, a court in Podgorica found the founder of TFL guilty of document forgery in an attempt to leave Montenegro. He was sentenced to four months in prison.
Earlier in the week, the Swiss government blocked around $26 million in Bitcoin and other cryptocurrencies linked to Terraform Labs and Do Kwon.