New York Court Rules Crypto Falls Under US Investor-Protection Laws 👩‍⚖️

Friday the SEC notched a win as a New York court ruled against crypto entrepreneur Do Kwon and his firm Terraform Labs. The New York jury agreed with the SEC’s claim that Terraform Labs defrauded investors. Kwon’s TerraUSD and Luna tokens collapsed in 2022 resulting in losses totalling $40 billion for global investors. The jury agreed with the SEC’s claim that Kwon and his firm mislead investors about the stability of its stablecoin, which were designed to maintain a peg of $1. Kwon claimed the stablecoin known as TerraUSD, would “self heal” should the value fall below its peg. In 2021 when Terra USD fell below its $1 peg, Kwon failed to disclose a secret deal with high-speed trading giant Jump Trading that propped up TerraUSD. The judge in the case ruled that TerraUSD and Luna were sold as securities, thus they failed to comply with SEC rules. Crypto startups claim their tokens are commodities, which are sold without having to deal with SEC rules. Kwon did not attend the trial as he has been detained in Montenegro while the US and South Koren both vie to extradite him to face criminal charges.

This decision follows from the recent ruling against FTX founder, Sam Bankman-Fried, who was sentenced to 25 years in prison for defrauding customers and investors of more than $11 billion.

The SEC has other cases against Coinbase, Binance and Kraken, which hinge on whether the three exchanges deal in assets that must comply with investor-protection laws. Most cryptos have been sold without registering with the SEC, so if they were issued illegally, then the US crypto exchanges would need to stop trading them.

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