During a hearing on Thursday, June 15, representatives of Terraform Labs faced the US Securities and Exchange (SEC) in court in Manhattan to prove that the cryptocurrencies issued by the firm are not securities.
The answer to this question will play a pivotal role in the SEC’s lawsuit against the blockchain company and its founder Do Kwon, which, among other things, alleged that Kwon and his company defrauded investors and sold billions of dollars in cryptocurrencies which the regulator considers unregistered securities.
At yesterday’s hearing, Dentons, a law firm representing Terraform Labs against the SEC, presented new documents in support of their motion to dismiss the securities commission’s suit.
The SEC challenged the Dentons’ attempts, saying the documents, which include internal SEC emails and other important information, were not relevant. The regulator reiterated that Terraform’s collapsed algorithmic stablecoin UST should be considered a security.
In response, Dentons highlighted the practical purpose of UST as an algorithmic stablecoin and pointed to the regulatory gap when it comes to classifying crypto assets. Further, the lawyers also slammed the SEC for relying on internal emails relating to “investment contracts” to determine whether an asset is a security or not.
Judge questions the status of Terraform’s digital assets
During the trial, US Judge Jed Rakoff also made inquiries about the status of the digital assets issued by Terraform Labs.
Specifically, Rakoff raised questions about whether Terraform’s offering of the so-called Anchor protocol, which promised up to 20% returns on deposits of TerraUSD, should not be labeled as a security.
“It is something you created, that only people who had taken this first step could take advantage of. I don’t see why that’s not a securities contract at that point,” he said.
– Judge Rakoff said.
The judge then said he will deliver a ruling on the motion to dismiss the case by July 14.
Terraform’s two digital assets, TerraUSD and LUNA, crashed in 2022, sending shockwaves throughout the crypto markets, wiping out an estimated $60 billion off the crypto space.
Featured image via Terra YouTube.
