Do Kwon, Terraform Labs Win In Court But SEC Secures Victory In Securities Ruling

Terraform Labs and its embattled former CEO, Do Kwon, have emerged victorious in a case brought against them by the U.S. Securities and Exchange Commission. However, the outcome of the case does not indicate an absolute defeat for the regulator, as the presiding judge declared that both TerraUSD (UST) and LUNA, the algorithmic stablecoins in question, are securities.

On Thursday, Judge Jed Rakoff of the U.S. District Court for the Southern District of New York granted summary judgment over the SEC's claim that Terraform Labs, the blockchain firm co-founded by Kwon, offered unregistered securities and security-based swaps.

Judge Rakoff also validated the SEC's allegation that certain assets, including Terraform Labs' UST, LUNA, wLUNA and MIR tokens, are investment contracts, and therefore, are securities.

The judge made it clear that the sale of these assets were unregistered and violated the country's Securities Act. In his ruling, he further emphasized that there is "no genuine dispute" regarding the classification of the assets as securities.

But, Judge Rakoff sided with Kwon and Terraform Labs' camp "on the claims involving offering and effecting transactions in security-based swaps," saying the blockchain firm did not offer and effect transactions in security-based swaps.

Independent from the summary judgment, Rakoff said the fraud claims must be resolved at trial since the issues concern "genuine disputes of material fact."

The SEC's fraud allegations involved two major issues. The first concerns the de-pegging of Terra's algorithmic stablecoin, UST. The regulator alleged Kwon had a deal with Jump Crypto to help the stablecoin recover its peg to the dollar.

The second concerns Chai Corporation, founded by TFL co-founder Daniel Shin, which claimed that it used the Terra blockchain. The SEC also alleged that Kwon falsely represented Chai as processing and settling transactions on the Terra blockchain

The fraud trial is scheduled for Jan. 29.

The SEC's lawsuit is just one of the many legal troubles awaiting Kwon in the U.S. The Department of Justice has also charged the South Korean crypto mogul with eight criminal counts of fraud.

Kwon is currently in Montenegro awaiting a court decision on his extradition after the appellate court in the Balkan country accepted his appeal and revoked the High Court's approval of his extradition to the U.S. or South Korea.

Citing a lack of clear reasoning and issues in the legal process, the court overturned and nullified the High Court's decision on Kwon's extradition, returning the case to the High Court of Podgorica for further review.

"The Appellate Court of Montenegro, after the session of the panel on Dec.14, issued a decision in which it accepted the appeal of the defense attorneys of the defendant Kwon Do Hyeong, annulled the decision of the Higher Court in Podgorica Kv.br .1045/23 dated Nov. 17 and sent the case back to the first-instance court for retrial and decision," a statement from the Appellate Court read.