Terraform Labs, the embattled company behind the failed Terra (UST) stablecoin and LUNA cryptocurrency, has requested a jury trial to decide the regulatory status of its tokens. This comes in response to a lawsuit filed by the Securities and Exchange Commission (SEC) in February, alleging Terraform Labs and its co-founder Do Kwon of orchestrating a multi-billion dollar securities fraud.
The SEC claims that Terraform Labs offered and sold UST, LUNA, Wrapped LUNA (wLUNA), and Mirror Protocol tokens (MIR) as unregistered securities, violating securities laws. Terraform Labs, on the other hand, argues that these tokens are not securities and that the case should be decided by a jury.
Terraform Cites Jury Precedent
The company’s lawyer, David Kornblau, cited the 2021 case Audet vs. Fraiser, where a jury determined that four cryptoassets were not securities, as precedent for their request. However, the SEC argues that the Audet case is the only instance where a jury was involved in such a decision and that the facts clearly show Terraform Labs sold securities.
This legal battle revolves around the broader issue of whether and how cryptocurrencies should be classified and regulated. The Howey test, a legal framework used to determine whether an investment contract exists, is often used in such cases. If a cryptocurrency is deemed a security, it falls under the SEC’s jurisdiction and its issuers need to comply with stringent regulations.
Previously, Terraform Labs requested a summary judgment in their favor, hoping to avoid a full trial. However, if the judge chooses not to grant their request, they are now pushing for a jury trial.
Meanwhile, Do Kwon, who was arrested in Montenegro in March for using a fake passport, faces potential extradition to the United States to face the SEC’s charges. The Montenegrin court approved his extradition in late November, adding another layer of complexity to this ongoing saga.
The outcome of this case could have significant implications for the entire cryptocurrency industry, as it will set precedents for how regulators approach the classification and regulation of digital assets.