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Federal Judge Rules Against Terraform labs

Crypto | Jan 2, 2024

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A New York judge has granted the SEC a summary judgment over the claim that Terraform sold unregistered securities

  • Judge Jed Rakoff ruled that four crypto tokens offered by Terraform Labs, including UST and LUNA, wLUNA, and MIR were unregistered securities based on the Howey test, a Supreme Court precedent for defining investment contracts.
  • Terraform Labs, during the crypto bull run of 2021, was a significant player in the crypto space, but faced a dramatic downfall with the collapse of UST in 2022.  The SEC has sued Terraform Labs and co-founder Do Kwon in February 2023 for orchestrating a multibillion-dollar securities fraud.
  • The jury trial is scheduled to begin in January 2024.
  • The decision diverges from a separate ruling in the Southern District of New York regarding the XRP token.

Terraform Labs spokesperson in an email to The Block:

"We strongly disagree with the decision and do not believe that the UST stablecoin or the other tokens at issue are securities.  Further, the SEC’s fraud claims are not supported by evidence, and we will continue to vigorously defend against those meritless allegations at trial."


The divergence in legal interpretations between different courts, as seen in the Ripple case and now Terraform Labs, adds complexity to the regulatory environment for crypto assets.  The Terraform Labs summary judgment strengthens the SEC's approach to treating certain crypto assets as securities, potentially setting a precedent for future cases.

See:  Moody’s Analytics on Stablecoin Depegging

The case puts a spotlight on algorithmic stablecoins, a relatively new and complex type of crypto asset, and their regulatory treatment.  The denial of summary judgment on fraud claims suggests a protracted legal battle ahead, with significant implications for Terraform Labs and its stakeholders and possible precedent that could shape the future of digital asset regulation.  It is imperative for regulators, companies, and investors to engage in constructive dialogue to establish a regulatory framework that balances innovation with investor protection.

NCFA Jan 2018 resize - Federal Judge Rules Against Terraform labsThe National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit:

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