Do Kwon Lawsuit Continues Tension With Important Ruling From Judge

Key Points:

• The judge confirms LUNA, UST, wLUNA, and MIR as securities, dismissing Terraform’s claim that they weren’t.
• The Do Kwon lawsuit proceeded to a January 29, 2024, trial, with Terraform Labs vowing to contest the SEC’s allegations related to the UST collapse in May 2022.

In a significant development, a U.S. federal judge has sided with the Securities and Exchange Commission (SEC) in a case against Terraform Labs and its former CEO, Do Kwon.

Read more: Do Kwon Extradition Decision Is Currently Having Difficulties Before Deadline

Judge Rules LUNA, UST, wLUNA, and MIR as Securities in Do Kwon Lawsuit

The ruling, issued by U.S. District Judge Jed Rakoff on Thursday, determined that Terraform Labs violated U.S. law by failing to register two digital currencies, LUNA and MIR, which collapsed in 2022.

In the Do Kwon lawsuit, the SEC alleged that Terraform Labs and Kwon offered and sold unregistered securities, including LUNA, UST, and MIR. The court granted summary judgment in favor of the SEC, highlighting the failure to register the aforementioned digital currencies.

While denying summary judgment on the SEC’s fraud claims, Judge Rakoff has set a trial date for January 29, 2024, dismissing claims related to illegal security-based swaps. Terraform Labs, expressing strong disagreement with the decision, asserted that its tokens were not securities and vowed to continue defending against what they termed the SEC’s “meritless” fraud claims.

Judge Rakoff, in his ruling, emphasized that UST, LUNA, wLUNA, and MIR are considered securities under the Howey test. The upcoming trial will now focus on the SEC’s fraud allegations against Terraform and Kwon, filed in February.

The Do Kwon lawsuit originated from the collapse of UST, an algorithmic stablecoin, in May of the previous year, leading to a significant loss of value and a prolonged crypto winter. The SEC not only seeks to label Terraform’s cryptocurrency issuance as illegal unregistered securities offerings but also accuses Kwon of deceiving investors about the nature and security of UST’s peg to $1.00.

This ruling comes amid other legal challenges for Kwon, who faces criminal charges from the Department of Justice, including eight counts of fraud. Kwon was arrested in Montenegro in March after fleeing charges in South Korea.