The United States District Court has ruled in favor of the Securities and Exchange Commission (SEC) against Terraform Labs and its former CEO, Do Kwon. This decision, issued by District Court Judge Jed Rakoff, concludes that the entities were involved in the offering and selling of unregistered securities, explicitly targeting the cryptocurrencies LUNA and MIR.
Mixed Verdict on Security-Based Swaps
However, the court presented a nuanced view on security-based swaps. The defendants received a favorable judgment regarding these swaps’ unregistered offer and sale. The focus was on Terraform’s Mirror Protocol, which allowed users to mint “mAssets,” mirroring real-world assets on the blockchain. The court disagreed with the SEC’s view that these mAssets constituted security-based swaps, concluding they did not meet the legal definition.
Application of the Howey Test
The ruling heavily relied on the Howey test to determine the nature of the investments. The court noted a previous s
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