Terraform, Do Kwon lawyers get creative, try to use Ripple ruling to dismiss their own suit

Terraform lawyers also asked the court overseeing the FTX case if they can issue subpoenas to gather wallet information in its case against the SEC

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Furkan Cubuk/Shutterstock modified by Blockworks

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This month’s partial victory for Ripple in its long-running legal fight with the Securities and Exchange Commission is now being used as a possible means to toss out a different crypto court battle.

Court documents show that lawyers for Terraform Labs and co-founder Do Kwon want to use that ruling in an effort to dismiss an SEC case brought in the wake of the collapse of the failed algorithmic stablecoin UST

It’s a notable development that signals how this month’s Ripple case ruling could impact a broader swath of crypto-related legal cases, though it’s unclear how persuasive Terraform and Kwon’s legal arguments will prove to be. 

In the motion to dismiss filed in New York earlier this week, lawyers for Kwon and Terraform claimed that the Ripple ruling “confirms the legal insufficiency of the SEC’s argument that UST, LUNA, wLUNA, MIR, and mAssets were securities because of the way they were allegedly sold.”

In a lawsuit filed in February, the US securities regulator claimed that the algorithmic stablecoin and sister-token LUNA were both unregistered securities. 

The lawsuit against Terraform and Do Kwon alleges that they “marketed crypto asset securities to investors seeking to earn a profit, repeatedly claiming that the tokens would increase in value.”

In the motion to dismiss, however, the defendant’s counsel argues that the Ripple decision is applicable because institutional sales of LUNA and MIR “were exempt from registration” — therefore excluding them from Judge Analisa Torres’ finding that the institutional sales of XRP met the Howey test and were, therefore, securities offerings.

“Ripple is thus fatal to the SEC’s arguments that UST, LUNA, wLUNA, MIR, and mAssets were sold as investment contracts,” the lawyers argue. 

The court has yet to publicly weigh in on the motion to dismiss. 

The filing wasn’t the only legal action Terraform’s lawyers took this week. 

They asked the court overseeing the FTX case to serve FTX Trading and West Realm Shires with subpoenas. Terraform hopes to use FTX’s wallet, accounts and assets records to demonstrate it is not at fault for the collapse of UST. 

Specifically, Terraform wants access to information on wallets used by Jump Trading to trade UST and LUNA from “May 1 to May 31, 2021 and May 1 to May 31, 2022.” 

The lawyers are also seeking wallets and assets “used by short sellers” from March to the end of May of last year. They also seek other wallets or accounts “that could have been used by these or other short sellers” which would include the identities or controllers and could span from January 2018 to the present. 

Terraform asked that if the order is granted, the information be handed over immediately as the trial is scheduled to begin Nov. 30.

Terraform appointed a new interim CEO this week, Chris Amani, who said that Kwon is “welcome back.” Kwon is currently serving a prison sentence in Montenegro after falsifying travel documents.


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