The U.S. SEC has submitted a letter to Judge Jed Rakoff in the ongoing case against Terraform Labs, presenting the argument that the crypto assets should be classified as securities under legal definitions.
The letter, dated Dec. 4, outlines the regulator’s position and proposes that the court, rather than a jury, determine whether the tokens in the case are securities.
The SEC’s letter referred to the Howey Test, derived from the 1946 Supreme Court case SEC v. W.J. Howey Co., to support its argument. The watchdog said that courts have always decided such matters as part of the law without the involvement of a jury.
Terra’s tokens are securities: SEC
According to the SEC, the defendants’ offerings of crypto assets satisfy all prongs of the Howey test, which assesses whether there is an investment of money in a common enterprise with expectations of profit primarily from the efforts of others.
The commission insists that there is no significant dispute over the facts that establish the nature of the crypto asset offerings, thus framing the issue as a legal question suitable for the court’s decision. The letter cited various legal precedents where courts have determined the status of an instrument as a security, suggesting that this approach aligns with past judicial practice.
Additionally, the SEC mentioned cases where courts have previously granted summary judgment in similar situations, indicating that such a judgment might also be appropriate in this case. If Judge Rakoff gives a summary judgment in favor of the SEC, it would lead to the crypto assets being classified as securities.
The SEC’s submission is part of ongoing efforts to address the regulatory status of cryptocurrencies and related assets. As the cryptocurrency market expands, the SEC and other regulatory bodies continue to examine how traditional financial market regulations might apply to digital assets.
The decision in the Terraform Labs case will potentially influence how other crypto assets are regulated under U.S. law.
Terra files for summary judgment
The SEC filed a case against Terraform Labs PTE Ltd and its CEO, Kwon Do-hyung, earlier this year on Feb. 16. The charges were related to orchestrating a multi-billion dollar crypto asset securities fraud involving an algorithmic stablecoin and other crypto asset securities.
Terraform Labs has also requested the presiding judge for a summary judgment in the case on Dec. 4. The company request references the SEC’s alleged misrepresentations in a separate case involving DEBT Box, where Judge Robert Shelby criticized the SEC’s actions.
Terraform’s legal team suggests that this situation reflects on the SEC’s handling of evidence and allegations in their own case. The DEBT Box case, involving alleged SEC misrepresentations, is highlighted as a precedent that could impact Terraform’s case.
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Author: Assad Jafri