U.S. Federal Judge Rules Terraform Labs’ Luna and Mir Tokens Violate Securities Laws

A U.S. federal judge has ruled that Terraform Labs, the creator of Terra and Luna cryptocurrencies, violated federal securities laws by selling its cryptocurrencies to the public. Judge Jed Rakoff of the U.S. District Court for the Southern District of New York issued a summary judgment stating that Terraform Labs failed to register LUNA and MIR, another cryptocurrency in the Terra ecosystem, as securities.

This ruling could have significant implications for an upcoming trial regarding Terraform’s securities violations. Judge Rakoff denied the efforts of both parties to exclude testimony from opposing expert witnesses who have studied the trading activity that led to UST’s depegging in May 2022. However, the judge did block two defense witnesses, one of whom would have provided insight into activity in Terraform’s custodial wallets, and the other who would have given the jury an overview of Terraform’s crypto economy.

The court’s judgment aligns with regulators’ stance that most cryptocurrencies should be classified as securities and fall under the purview of the Securities and Exchange Commission (SEC). However, the ruling only recognizes the SEC’s authority over Luna and Mir, leaving the status of other cryptocurrencies uncertain.

The SEC filed a lawsuit against Terraform Labs earlier this year, following a series of similar complaints against key players in the cryptocurrency industry. The lawsuit came on the heels of the depegging of Terraform Labs’ algorithmic stablecoin UST, which sent shockwaves through the crypto industry.

The judge’s ruling underscores the increasing scrutiny and regulatory pressure faced by the cryptocurrency industry. As cryptocurrencies continue to gain popularity and attract significant investments, regulators are keen on ensuring investor protection and maintaining market integrity. The classification of cryptocurrencies as securities could subject them to additional regulations and oversight, potentially impacting their value and market dynamics.

It remains to be seen how this ruling will shape the future of Terraform Labs and the broader cryptocurrency landscape. As the industry grapples with regulatory challenges, stakeholders will closely monitor the outcome of the upcoming trial and its potential implications for the classification and treatment of cryptocurrencies.