SEC’s Win Versus Terraform Labs
The US District Court for the Southern District of New York has reached a decision in the highly anticipated legal battle between the Securities and Exchange Commission (SEC) and Terraform Labs.
The case centered on the classification of digital assets issued by Terraform Labs. Accordingly, Judge Jed Rakoff delivered a complex ruling that favored the SEC’s assertion that Terraform Labs had engaged in the offering and sale of unregistered securities.
This ruling, rooted in the scrutiny of Terraform’s digital assets, questioned their classification under established securities laws.
The Howey Test And Crypto Classification
The core of the issue revolved around using the Howey Test, an important tool in securities law, to decide if specific token sales meet the criteria of investment contracts and are considered securities. Accordingly, the SEC argued that Terraform’s digital assets, specifically UST (Terra’s stablecoin) alongside the Anchor Protocol, met the criteria of an investment contract and should, therefore, be classified as securities under the law.
Despite Terraform Labs’ defense asserting that UST, on its own, was not securities as its value is pegged 1:1 with the USD, the court highlighted promotional efforts and promises of high yields associated with the Anchor Protocol.
These facts contributed significantly to the court’s ruling that these token offerings constituted an investment contract. The court’s decision clarifies the application of the Howey Test to digital assets, underscoring its broad reach and relevance in determining the classification of cryptocurrencies under securities law.
Crypto Players No Longer Fear The SEC – Ripple’s Legal Chief
Stuart Alderoty, Ripple’s chief legal officer, recently claimed that participants in the cryptocurrency industry are gradually losing their respect for the US Securities and Exchange Commission (SEC). His statement comes amidst ongoing legal battles and regulatory uncertainties affecting the industry.
As 2024 draws close, the SEC’s persistent efforts to regulate the crypto sector will enter its seventh year, appearing as an unending saga. Thus far, the SEC has engaged in conflicts with prominent players in the crypto market, creating an unending battle regarding regulatory compliance.
Despite facing staunch resistance from industry giants like Binance, Coinbase, and Kraken, the SEC has upheld a formidable track record in its enforcement actions. Legal experts claim that the SEC’s moves lay the groundwork for pivotal legal confrontations that could significantly mold the trajectory of crypto regulation.
Crypto’s 2024 Prospects
According to insights shared by Alderoty, the crypto industry will continue its struggles with adhering to regulatory changes in 2024. Alderoty anticipates a definite conclusion of Ripple’s legal skirmish with the SEC.
He envisions the judiciary playing crucial roles in limiting the SEC’s regulatory oversights, possibly culminating in a face-off at the Supreme Court. Alderoty also predicts a gridlock within Congress regarding crypto regulation, leaving US firms in an uncertain position.
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