Top law firm Dentons has filed supplementary documents in defence of Terraform Labs and its co-founder, Do Kwon, in their ongoing legal battle against the U.S. Securities and Exchange Commission (SEC). The court hearing, which took place on Thursday, focused on whether the digital assets created by Terraform Labs should be classified as securities under an “investment contract.”
Dentons Lawyers Claim UST Is Not A Security
Dentons lawyers, representing Terraform Labs and Do Kwon, strongly assert that the algorithmic stablecoin UST (now USTC) does not qualify as a security, as its primary purpose is practical rather than an investment contract. The additional documents submitted by the legal team support their motion to dismiss the SEC lawsuit and include pertinent evidence from various sources.
Among the materials presented by Dentons are transcripts from a hearing held by the U.S. House Financial Services Committee, addressing digital asset regulation and stablecoin issuance. The legal team highlights the ongoing discussions within the U.S. Congress regarding regulatory frameworks for digital assets and stablecoins, emphasizing the existing regulatory gap in determining whether crypto assets should be classified as securities.
Furthermore, Dentons argues that the SEC’s pursuit of this case exceeds the boundaries set by securities laws. The legal team cites internal SEC emails related to the concept of an “investment contract” and its application to determine the classification of security. They contend that these internal communications demonstrate the SEC’s departure from established legal principles.
Court Hearing Centers on Classification of Terraform Labs’ Digital Assets as Securities
In response, lawyers from the SEC maintain that the additional documents submitted by the defendants fail to support the motion to dismiss the lawsuit. They argue that the Binance.US transcript and internal SEC emails are irrelevant to the case at hand, asserting that the Howey Test establishes the criteria for identifying an “investment contract.” According to the SEC, UST qualifies as a security based on this test.
Meanwhile, in a separate development, the Montenegro High Court has granted bail to Do Kwon and former Terraform Labs CTO Han Chang-joon. However, both individuals will remain in custody, as the High Court judge has ordered their extradition to South Korea.
Responding to a request from South Korea, the investigating judge at the High Court has ordered the six-month extradition detention of Do Kwon and Han Chang-joon. This decision means that they will not be released on bail and will be sent to South Korea to face further legal proceedings.
The legal battle between Terraform Labs, Do Kwon, and the SEC continues to unfold, as the court deliberates on the motion to dismiss the lawsuit. The outcome of this case is expected to have significant implications for the classification of digital assets and stablecoins under U.S. securities laws.