Court Declares Terraform Labs’ LUNA and MIR as Securities

On Thursday, a court in the US claimed that the trash-talking crypto investor Do Kwon violated the securities law by offering unregistered digital assets. The court report demonstrated that the LUNA, and MIR provided by the fallen trading platform Terraform Labs were securities.

The court claimed that Terraform’s product offering breached the securities law since the exchange failed to register with the relevant authority.

Court Sides with SEC on Terraform Labs’ Unregistered Securities

Earlier this year, the US market regulators charged Do Kwon with two criminal counts involving securities and commodities fraud and conspiracy wire fraud.

After a lengthy court proceeding, Judge Jed Rakoff sided with the US Securities and Exchange Commission (SEC) and accused the disgraced crypto investor of offering unregistered securities.

A review of the SEC accusation demonstrates that besides breaching security laws, the troubled crypto investor operated a dubious scheme that resulted in over $40 billion loss.

Also, the SEC claimed that Terraform Labs offered the public an unregistered security-based swap. According to the SEC, Do Kwon led the project and operated the Mirror protocol that allowed the user to mint mAssets, which failed to meet the compliance requirements.

After assessing whether the Terraform Labs meet the regulatory requirement, the court noted that the said mAssset were not classified as a security-based swap under the statutory law. The court defined the mAsset as a blockchain-oriented asset representing real-world assets.

Review of Court Judgement Concerning Do Kwon Case

Citing the statutory requirement for offering the security-based swap, the court denied the SEC claims that Do Kwon illegally offered the mAssets. Also, Judge Rakoff revisited a comment by Do Kwon concerning LUNA investment.

He noted that LUNA holders were advised to sit back and watch how the LUNA will pass the Howey Test. This implies that the investors were encouraged to invest their funds in a common enterprise and expect to generate profit from their investment.

The court noted that Terraform Labs hired promoters and intermediaries to maximize the investor’s value. Judge Rakoff stated that Do Kwon could not deny the claims that Terra encouraged the MIR holders to invest in common enterprises to generate returns.

He argued that Terraform’s efforts to develop and maintain the Mirror Protocol generated a return on MIR investment. The judge noted that MIR passed with flying colours in the multiple Howey test.

Additionally, Judge Rakoff rejected the Terraform request for excluding SEC officials Dr. Bruce Mizrach and Dr. Matthew Edman from testifying against the 32-year-old crypto investor. The court denied the SEC’s motion to exclude the defence testimonies from Dr Terrence Hendershott.

Terraform Labs Case to Continue in January

Elsewhere the Terraform spokesperson stated that the company vehemently refuted the court ruling. The spokesperson lamented that the tokens offered by Terraform were not securities.

He opposed the SEC’s claims that Terraform engaged in multiple fraudulent activities that exposed the customers to loss of substantial amounts of funds. The spokesperson claimed that the SEC lacked sufficient evidence to show that Terraform engaged in fraud.

The court plans to proceed with the Do Kwon fraud charges from next month and has scheduled January 24 for the appointment of the judges.

The court ruling came days after the Montenegro appellate court rejected the extradition of Do Kwon to the US. Apart from this the  court of appeal ordered the embattled crypto investor to be returned to the Podgorica court for retrial.