The SEC’s Recent Win in Terraform Labs Dispute Strengthens Case Against Coinbase and Binance

The U.S. Securities and Exchange Commission (SEC) is using its recent victory in the Terraform Labs case to bolster its arguments against cryptocurrency exchanges Coinbase and Binance. The SEC has been engaged in legal battles with various crypto platforms, seeking to establish that these exchanges are trading unregistered securities.

While the SEC has faced setbacks in some of its crypto-related lawsuits, such as the case against Ripple and Grayscale Investments’ challenge to the agency’s rejection of a spot bitcoin exchange traded fund (ETF) application, it achieved a win last week in the Terraform case. The SEC successfully argued that Terraform was improperly offering securities through its Terra/Luna stablecoin offerings and the Mirror Protocol.

In a filing submitted to Judge Katherina Polk Failla on January 4, an SEC lawyer stated that the Terraform court ruling favored the SEC’s position, which the agency also highlighted in a similar filing the day before in its dispute with Binance. The SEC aims to use these victories as evidence to convince other judges that its argument holds merit.

Judge Jed Rakoff, overseeing the Terra case in the U.S. District Court for the Southern District of New York, sided with the SEC in a ruling at the end of last year. He stated that the defendants’ request to disregard established Supreme Court law was unfounded, emphasizing that tokens UST, LUNA, and MIR are investment contracts.

The SEC believes that the finding in the Terra case aligns with the allegations made against Coinbase and Binance, where the platforms are accused of facilitating the trading of unregistered securities. However, it remains uncertain whether other judges will interpret the cases in the same manner.

Jaret Seiberg, an analyst at TD Cowen, noted that the recent victories do not negate the SEC’s previous losses or partial wins. Instead, they represent the ongoing development of the law as judges evaluate how securities laws apply to crypto products. Seiberg also highlighted that decisions made at the district court level will eventually be overshadowed by federal appeals courts and potentially the Supreme Court, but this process could take years.

A trial is scheduled for January 29 to resolve the remaining disputes in the SEC’s case against Terraform and its founder, Do Kwon. A spokesperson for Terraform expressed strong disagreement with Judge Rakoff’s decision and stated that the company will vigorously defend against the allegations during the trial. Coinbase declined to comment on the SEC’s recent filing in the case.

In conclusion, the SEC’s recent win in the Terraform Labs case is being used as leverage in its ongoing disputes with Coinbase and Binance. The outcome of these legal battles will have significant implications for the regulation of cryptocurrency exchanges and the trading of digital assets.