- Terraform Labs’ lawyers pushed to dismiss the case, citing a ruling in the SEC’s lawsuit against Ripple Labs.
- Judge Jed Rakoff questioned it and affirmed the regulator’s authority.
District Judge Jed Rakoff denied a motion by Terraform Labs’ lawyers to dismiss the SEC lawsuit. It deemed the regulator’s arguments exhaustive.
Remember, the company had pushed to dismiss the lawsuit, citing a ruling in the SEC’s proceeding against Ripple Labs. In the case, Judge Analisa Torres ruled that the retail sale of XRP does not violate the Securities Exchange Act.
Chairman Rakoff questioned a colleague’s ruling. He said the distinction between categories of purchasers is inapplicable to the legal interpretation of the “Howey test,” which determines whether a particular token is a security:
“The court declines to distinguish between these assets based on their method of realization.”
With respect to the allegations against Terraform Labs, Rakoff noted the following:
“Defendants launched a broad campaign to induce both retail and institutional investors to purchase UST by advertising the high yields on cryptoassets and the management and technical skills of the management team that, in theory, would maximize profits. Simply put, in the secondary market, depositors had every reason to believe that the defendants would take their money, manage it, and it would produce a return.”
Rakoff also reaffirmed the SEC’s right to use the “core issues doctrine”. Prior to that, lawyers for Terraform Labs said the regulator had overstepped its authority because the U.S. does not yet have a regulatory framework in place for the sector.
Terraform Labs’ lawyers said the regulator had overstepped its authority because the U.S. does not yet have a regulatory framework for the sector.