SEC Pushes for Judge to Classify Crypto as Securities in Terraform Labs Case, Bypassing Jury

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Trent Alan

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Trent Alan

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Trent has a background and education in journalism and communications, with two decades of experience editing and writing on a diverse array of topics. In recent years, however, he has shifted his...

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December 5, 2023 14:13 EST

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The Securities and Exchange Commission (SEC) urged a judge on Monday to decide whether certain cryptocurrencies qualify as securities in its ongoing lawsuit against blockchain company Terraform Labs.

In the court filing, the SEC argued there is no dispute that the crypto tokens offered by Terraform Labs involve investments tied to the efforts of the company. As such, the commission believes the matter is a legal question that should be determined by the presiding judge rather than going to a jury trial.

SEC Wants to Set Precedent on Terraform’s Crypto as Securities

The SEC’s move seeks to bypass a jury decision on the critical issue of whether the tokens offered by Terraform Labs meet the legal definition of a security. If deemed securities, the tokens would fall under the regulatory purview of the SEC.

The commission claimed the facts surrounding Terraform Labs’ crypto offerings are clear — they entailed an investment of money in a common enterprise with profits dependent on others’ work. In the SEC’s view, these undisputed facts mean the crypto should be classified as securities.

“There are no factual questions concerning how Defendants’ crypto assets were sold, the terms of those offers and sales, or what Defendants said in their marketing materials or promotions surrounding them,” the SEC filing stated.

The regulator believes the judge should rule that Terraform Labs’ cryptocurrency offerings checked all the boxes of the Howey Test, the longstanding criteria used to deem if an asset is a security.

Court Ruling Could Expand or Limit SEC’s Crypto Authority

This push by the SEC comes as the agency ramps up crypto enforcement. The SEC previously deemed Ripple’s XRP as a security, though in July a judge ruled that XRP does not necessarily meet the Howey Test parameters.

For now, the SEC is pressing ahead assertively with its crypto regulation campaign. By pushing for the judge to decide on the security status, the regulator seeks to assert greater control in its ongoing struggle to regulate cryptocurrencies. This would mark a major win for the SEC’s bid to expand its authority over cryptocurrencies. The court has yet to issue a ruling on the SEC’s request, however, so the jury is still out on whether the judge will deliver the verdict the agency seeks.