Hot Development: Critical Decision in SEC and Terra Lawsuit!

The U.S. District Court sided with the SEC in the high-profile crypto case against Terra Labs. However, he put the jury trial on the fraud allegations on hold.

Mixed decision on security-backed swaps

The United States District Court ruled in favor of the Securities and Exchange Commission (SEC) against Terra Labs and its former CEO, Do Kwon. This ruling, by District Court Judge Jed Rakoff, concluded that the entities in question were clearly involved in the supply and sale of unregistered securities targeting LUNA and MIR cryptocurrencies.

However, the court took a nuanced view on the issue of security-based swaps. The defendants obtained an affirmative judgment regarding the unregistered offer and sale of these exchanges. The focus is on Terra Labs' Mirror Protocol, which allows users to mint "mAssets" that mirror their real-world presence on the blockchain. The court disagreed with the SEC's view that these mAssets constituted security-backed swaps. He concluded that they did not meet the legal definition.

### The Court's Terra decision is based on the Howey Test

The decision relies heavily on the Howey test to determine the nature of the investments. The court draws attention to an earlier statement made by Kwon. Along these lines, LUNA states that its investors are effectively investing their money in a joint venture in anticipation of profits from Terraform Labs and Kwon's efforts. Similarly, it evaluates the MIR token according to the same criteria. The court notes Terra Labs' expectation of profits from its development efforts. Therefore, Howey concludes that he did indeed meet his test.

Expert statements: A decisive factor

Another critical aspect of the case was the court's stance on expert testimony. The SEC's request not to take the testimony of defense expert Dr. Terrence Hendershott was denied. However, the court allowed the testimony of SEC experts Dr. Bruce Mizrach and Dr. Matthew Edman. Thus, it strengthened the SEC's position in the case.

### SEC's Terra fraud allegations awaiting hearing

Despite these rulings, the court did not provide summary judgments for either side on the SEC's fraud allegations against Terraform Labs and Kwon. These allegations, which allegedly involve a fraudulent cryptocurrency scheme that wiped out over $40 billion in market capitalization in 2022, are set for a jury trial. The program anticipates jury selection on January 24, 2024. It marks the next stage in this high-profile legal battle that soon concerns the Terra ecosystem.

As you can see from kriptokoin.com, this decision is very important for the crypto world. That's because it reflects the ongoing scrutiny and regulation efforts surrounding cryptocurrencies and Blockchain businesses. Arguably, the outcome of the pending jury trial will set a precedent for future trials in this rapidly evolving field. For this reason, the cryptocurrency community will be watching closely.

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