SEC wants judge overseeing Terraform case to rule on securities claims

The Securities and Exchange Commission is asking Judge Jed Rakoff to rule on whether or not Terraform offered and sold unregistered securities. 

The SEC, in its case against Terraform Labs and former CEO Do Kwon, is making the request to prevent a jury from making a decision on the alleged securities.

The issue at hand, lawyers for the regulatory agency wrote, is a legal question that requires court determination, and is not “a factual question for the jury.”

“There is no dispute, for example, as to any of the facts that establish that Defendants’ crypto asset offerings involved an investment of money, in a common enterprise, with an expectation of profit to be derived from Defendants’ efforts,”  the SEC wrote in the Dec. 4 filing.

“Whether Defendants’ offers and sales of their crypto assets are investments contracts is thus a question of law for the Court, not the jury.”

The SEC goes on to claim that Terra, in its opposition filing to the SEC’s motion for summary judgment, failed to raise issue with the SEC’s allegations that Terra sold and offered unregistered securities in the form of crypto.

Lawyers for the commission believe that the “undisputed facts” they’ve put forward in former filings are enough to “satisfy the governing legal standard” and therefore are enough for Judge Rakoff to rule on.

The case is “straightforward,” the SEC claims and therefore Rakoff should be able to grant a summary judgment — which is “routinely” done in “such circumstances.”

A summary judgment was granted in another crypto case this summer: the SEC’s case against Ripple. However, the outcome was not fully in favor of the regulatory agency. 

Instead, Judge Analisa Torres — a district court judge for the Southern District of New York — ruled that programmatic sales of Ripple’s XRP didn’t pass the Howey test. Institutional sales, she ruled, constituted an unregistered securities offering.  

Rakoff, also a district judge for the Southern District of New York, didn’t seem to agree with the Torres ruling earlier this summer when Terraform attempted to use the ruling to get its case dismissed. 

Rakoff, in his denial, said that the Ripple and Terraform cases are separate, in part due to the SEC’s allegations that Terraform “had the motive to mislead investors about the utility of their crypto-assets” were upheld due to the evidence provided by the Commission.

Rakoff’s opinion also plainly stated that his court “rejects the approach recently adopted by another judge of this District in a similar case,” citing the SEC’s case against Ripple.

Howey, he said, does not make a distinction between institutions that buy crypto or those who purchased the assets via secondary transactions. 

“That a purchaser bought the coins directly from the defendants or, instead, in a secondary resale transaction has no impact on whether a reasonable individual would objectively view the defendants’ actions and statements as evincing a promise of profits based on their efforts,” Rakoff wrote in late July.

---

Get the news in your inbox. Explore Blockworks newsletters:

• Blockworks Daily: The newsletter that helps thousands of investors understand crypto and the markets, by Byron Gilliam.
• Empire: Start your morning with the top news and analysis to inform your day in crypto.
• Forward Guidance: Reporting and analysis on the growing intersection of crypto and macroeconomics, policy and finance.
• 0xResearch: Alpha directly in your inbox. Market highlights, data, degen trade ideas, governance updates, token performance and more.
• Lightspeed: Built for Solana investors, developers and community members. The latest from one of crypto’s hottest networks.
• The Drop: For crypto collectors and traders, covering apps, games, memes and more.
• Supply Shock: Tracking Bitcoin’s rise from internet plaything worth less than a penny to global phenomenon disrupting money as we know it.