A federal judge ruled Thursday that Terraform Labs and its founder, Do Kwon, offered and sold unregistered securities in the form of cryptocurrencies, including LUNA and UST, in a major victory for the Securities and Exchange Commission (SEC). 

Judge Jed Rakoff of the U.S. District Court Southern District of New York granted the SEC summary judgment on claims that Terraform offered unregistered securities and security-based swaps—meaning that those matters will not be up for debate when the SEC’s case against the company and its founder goes to trial. 

The jury in the case, should it not be settled beforehand, will now only be asked to determine other elements of the securities fraud charges, such as whether Kwon misled or deceived customers about the security of Terraform’s financial products, including the algorithmic stablecoin UST. 

In May of last year, UST—a so-called algorithmic stablecoin meant to remain equal to the U.S. dollar, despite boasting no cash reserves—collapsed, wiping out some $60 billion worth of value and triggering a crypto winter that has not yet subsided. 

The SEC, in addition to seeking to label Terraform’s issuance of multiple cryptocurrencies as illegal unregistered securities offerings, has also alleged that Kwon engaged in a scheme to deceive investors about the nature and security of UST’s $1.00 peg. 

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Author: Sander Lutz

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