Federal Court Rejects Terraform Labs’ and Do Kwon’s Request to Dismiss Lawsuit

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Terra Do Kwon
Summary: A federal court rejected Terraform Labs' and Do Kwon's request to dismiss a U.S. SEC complaint. Judge Jed Rakoff also rejected a ruling by Judge Analisa Torres, who found Ripple Labs did not break securities law by selling XRP on secondary platforms to retail investors.


Key Takeaways:

  • Judge Jed Rakoff also rejected the ruling that Ripple Labs did not break securities law.
  • The SEC filing indicates that Terraform actively sought out retail and institutional buyers of UST.
  • The SEC had filed a lawsuit against Terraform and its founder, Do Kwon.

On Monday, a federal court rejected a request by stablecoin issuer Terraform Labs to dismiss a complaint from the U.S. SEC. Importantly, U.S. District Judge Jed Rakoff of the Southern District of New York also rejected a ruling by his colleague, Judge Analisa Torres, who found that Ripple Labs, another defendant against the SEC, did not break securities law by selling XRP on secondary platforms to retail investors.

Earlier this year, the SEC filed a lawsuit against Terraform and its founder, Do Kwon, accusing them of fraud and deceiving investors over TerraUSD (UST), a stablecoin tied to the U.S. dollar through the LUNA token.

Did Not Agree With This Approach

Terraform claimed in its request to dismiss that UST buyers did not intend for their purchase to be an investment and instead used it for more mundane uses. Attorneys for Terraform mentioned the recent Ripple vs SEC ruling earlier this month, in which according to Judge Torres, retail investors who purchased XRP on intermediary exchanges via Ripple’s programmatic sales had no way of knowing they were obtaining XRP from Ripple even if Ripple had broken securities laws in selling XRP to institutional investors.

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On Monday, Judge Rakoff issued an order saying he did not agree with this approach. He pointed out that during the motion to dismiss stage, the facts in the SEC’s complaint must be deemed to be accurate. The SEC filing indicates that Terraform actively sought out retail and institutional buyers of UST.

Siddharth Chaturvedi