In a significant development, Do Hyeong Kwon’s legal team has turned to the recent victory secured by Ripple and XRP against the U.S. Securities and Exchange Commission (SEC) to bolster their bid to dismiss the regulatory watchdog’s lawsuit against their client and Terraform Labs.
According to a supplementary document filed on July 18, Kwon’s lawyers highlighted the decision made by Judge Analisa Torres in the SEC v. Ripple Labs case, which ruled that the digital asset XRP was not a security. The defendants’ legal team asserts that the SEC’s claims against the tokens UST, LUNA, wLUNA, and MIR lack merit, drawing parallels to the Ripple ruling. The Ripple decision stated that certain sales of XRP did not meet the criteria to be classified as investment contracts under the Howey test.
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Kwon’s legal team says SEC does not allege that UST was sold to anyone
The crux of the argument put forth by Kwon’s lawyers is that the SEC does not allege that UST was sold to anyone; rather, it was created through the Terra blockchain. Moreover, the sales of LUNA and MIR on secondary markets would not qualify as investment contracts based on the reasoning applied in the Ripple ruling. The defendants’ legal team also points out a critical distinction between institutional sales in the two cases. In the Ripple case, the judge ruled that Ripple’s institutional sales of XRP constituted an investment contract, as institutional buyers explicitly stated their intent to resell XRP, and contractual arrangements supported this. However, in the Terra case, the institutional sales of LUNA and MIR were exempt from registration and differed significantly from those in the Ripple case.
The SEC filed charges against Terraform Labs and Do Hyeong Kwon in February, approximately nine months after the collapse of the Terra ecosystem last May. The regulatory watchdog alleged improprieties and misconduct on the part of the defendants, contributing to the ecosystem’s downfall. Throughout the legal battle, the SEC case has remained active in the United States.
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Montenegrin Court once sentenced Kwon to jail
Adding further complexity to the situation, last month, a Montenegrin court sentenced Do Kwon and one of his associates to four months in prison for falsifying travel documents. Furthermore, South Korean authorities are seeking Kwon’s extradition to their country.
As the legal proceedings unfold, the recent Ripple victory has become a crucial point of reference for Kwon’s defence team, allowing them to argue that the SEC’s claims against UST, LUNA, wLUNA, and MIR lack merit, and the tokens do not fall under the classification of securities. The outcome of this case will undoubtedly have significant implications for the cryptocurrency industry and may potentially set a precedent for future regulatory actions concerning digital assets.