Summary judgment was granted by Judge Jed Rakoff, who determined that the LUNA and MIR cryptocurrencies, along with the UST stablecoins, should be classified as securities. The defendants were unable to present a compelling argument against the notion that MIR holders expected profits from the joint venture, and that these profits were contingent on Terraform’s efforts in developing and maintaining the Mirror Protocol. In essence, the court found that MIR tokens easily satisfied the Howey test, a legal criterion used to evaluate whether an asset is a security or not.
Judge Rakoff pointed to statements made by the former CEO of Terraform Labs, in which he suggested that LUNA holders should just sit back and watch the platform’s success, as evidence that LUNA did not meet the criteria of a security under the Howey test, but chose to reject this argument.
The court also dismissed the defense’s claim that the protocol running to create “mirror assets” mAssets constituted secure swaps, ruling that these assets did not meet the legal definition of security-based swaps.
This legal battle began in February 2023 when the SEC sued Terraform Labs and its CEO, Do Kwon, alleging that they had raised billions of dollars from investors by selling unregistered securities in the form of cryptocurrencies, promising their values would rise. The SEC further accused Kwon of deceiving investors about the stability of UST, which was losing its peg to the US dollar, and engaging in market manipulation.
Currently, Do Kwon is awaiting a court decision in Montenegro, where he was detained in March with false documents while attempting to leave the country. In a recent development, a local court has overturned the decision to extradite Kwon to South Korea and the United States.