A United States Securities and Exchange Commission lawsuit against Terraform Labs is set to go ahead after a U.S. judge overseeing the case denied the firm’s motion to dismiss on July 31.
In handing down the order, the judge also rejected a decision from another judge who ruled that Ripple did not violate securities laws based on their manner of sale.
The SEC first filed a suit against Terraform Labs and its founder, Do Kwon, on Feb. 16, alleging them of “orchestrating a multi-billion dollar crypto asset securities fraud.”
In rejecting the defendants’ motion to dismiss, Judge Jed Rakoff of the Southern District Court of New York found that:
“For purposes of this motion, all well-plead allegations must be taken as true, and all reasonable inferences therefrom must be drawn in the SEC’s favor.”
In its previous dismissal motion, Terraform Labs’ representatives argued that the SEC lacks jurisdiction over both the company and its founder. It also pushed back against the agency’s position that tokens including Mirror Protocol (MIR), Terra Classic (LUNC) and TerraUSD Classic (USTC) are securities.
It also argued that “Congress is not only engaging in robust debate over how crypto should be regulated, it is asking the SEC to wait for Congress to act.”
It went on to cite a procedural issue in the agency’s suit against Coinbase and its newly divulged emails concerning former SEC director William Hinman that figured in the agency’s suit against Ripple Labs.
However, Judge Jed Rakoff of the Southern District Court of New York wrote that “it would ignore reality to place the crypto-currency industry and the American energy and tobacco industries […] on the same plane of importance.”
Newsflash: Ripple Decision Already in (Big) Trouble
SDNY District Judge Jed Rakoff today allowed the SEC to go forward with its case against Terraform Labs and founder Do Kwon. In doing so, Judge Rakoff specifically rejected the distinction made in the Ripple case between public… pic.twitter.com/JZZ8vukfFt
The judge devoted several pages to an analysis of the Howey test, which was at the heart of the Hinman discussion. No formal contract is necessary to meet the test, and tokens themselves may be considered tokens in arguments before the court, Rakoff wrote.
The court also declined to “draw a distinction between these coins [MIR and LUNA] based on their manner of sale.” Therefore:
“The Court rejects the approach recently adopted by another judge of this District in a similar case, SEC v. Ripple Labs Inc. […] Howey makes no such distinction between [primary and secondary] purchasers.”
That approach — that XRP was a commodity when sold on the secondary market – was a partial win for Ripple. Its rejection here could bode well for the SEC, if other judges follow Rakoff’s example.
Bitfinex CTO Paolo Ardoino explained that if the hacking group was telling the truth, they would have asked for a ransom, but he “couldn’t find any request.”
The symbolism of Labour taking the West Midlands mayor, a jewel in the Tory crown, could be felt in the room as Labour activists gathered in Birmingham to celebrate the win with their new mayor Richard Parker and Labour leader Sir Keir Starmer.
There are moments on election journeys when the momentum shifts – and this win felt like one of them.
“We humbly asked [the voters] to put their trust and confidence in a changed Labour Party and they did. And that is a significant piece of political history that we’ve made here today,” said Sir Keir at his victory rally.
“So the message out of these elections, the last now the last stop before we go into that general election, is that the country wants change.
“I hope the prime minister is listening and gives the opportunity to the country to vote as a whole in a general election as soon as possible.”
This win gave them the boost that was missing when they won the Blackpool South by-election on a massive 26-point swing, but then failed to pick up the hundreds of council seats they were chasing.
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This win, on just 1,508 votes or 0.25 per cent of the vote, was a body blow for a Conservative party that believed they could just about cling on. Ben Houchen, the Tees Valley mayor, is now the last Tory standing.
For Labour, then a moment to bookmark.
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Just as Boris Johnson’s Hartlepool by-election win in 2021 was a low point for Sir Keir – he told me this week that he considered resigning over the loss because he thought it showed he was the barrier to Labour’s recovery – this too will feel devastating not just for Andy Street but for the PM too.
Labour has beaten him in a street fight. He’s bloodied with Sir Keir now emboldened.
“This was the one result we really needed,” said one senior Labour figure. “It’s been our top focus for the past week and symbolically a very important win.”
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Analysis of local election and mayoral results
And Labour needed the boost, because, as Professor Michael Thrasher pointed out in his Sky News’ national vote share projection calculated from the local election results, Sir Keir was not picking up the sort of vote share that Tony Blair was winning in the run-up to the 1997 Labour landslide.
His latest calculation of a 35% vote share for Labour and 26% for the Tories, put Sir Keir winning a general election but short of a majority.
What the West Midlands mayoral win did for Sir Keir was to give him a clear narrative that he is coming for the Tories and will do what he needs to take them down.
It raises inevitable questions about what is next for Rishi Sunak. The prime minister had nowhere to go today, not one win to celebrate. The worst performance in council elections in 40 years, was already pretty much as bad as it gets before the loss of Andy Street. The former Conservative mayor was magnanimous towards the prime minister, saying the loss was his alone.
But colleagues will not be so generous. One former cabinet minister said this loss was “devastating”. “We’re done and there’s no appetite to move against him,” said the senior MP. Many Tories tell me they are now resigned to defeat and believe Mr Sunak and his team needed to own it, rather than the rest of the party.
The coming days might be bumpy, the mood will be stony. But Tories tell me not much will actually change for them.
For Sir Keir, he now needs to sell not the changed Labour Party, but his vision for changing the country. The West Mids mayor’s win was dazzling, but it could have so easily gone the other way. And as Mr Sunak fights to survive, Labour still has to fight hard to win.