Do Kwon Seeks To Dismiss SEC Charges as South Korea Rules LUNA Is Not a Security

Terraform Labs co-founder and CEO Do Hyeong Kwon has requested that expenses introduced in opposition to him by the Securities and Alternate Fee (SEC) be dismissed, in line with court docket paperwork filed Friday.

In his movement to have the SEC expenses dismissed, Kwon argued the SEC’s claims are invalid, pushing again in opposition to the company’s place that tokens together with MIR, LUNA, and UST are securities. 

Now a South Korean court docket has dominated that, at the very least in the case of Terra governance token LUNA, he is proper. South Korean publication Ilyo Shinmum reported Monday {that a} court docket stated that Terra Basic (LUNC)—the rebranded model of LUNA—will not be a safety.

Moreover, Kwon’s counsel stated the company lacked the correct jurisdiction to convey expenses in opposition to Kwon and Terraform Labs as a result of Terra’s tokens and tasks have been “aimed on the world” and didn’t particularly goal U.S. traders.

The monetary watchdog’s lawsuit, filed final month, charged Kwon and the Singapore-based Terraform Labs with violating securities legal guidelines. It accuses the 2 of inflicting “devastating losses for traders” after providing them unregistered securities and making fraudulent statements about Terra’s governance token (LUNA) and algorithmic stablecoin TerraUSD (UST).

The SEC’s actions in opposition to Kwon and the corporate he co-founded preempted his arrest in Montenegro, the place he at the moment faces extradition. South Korean authorities issued an arrest warrant for Kwon in September and U.S. federal prosecutors unveiled legal expenses in opposition to him shortly after he was arrested a month in the past.

The SEC’s criticism in opposition to Kwon not solely touches on Terra’s LUNA and UST, which worn out greater than $40 billion of traders’ wealth once they collapsed final Could, but in addition options expenses associated to Terra’s Mirror Protocol, a challenge that sought to make artificial variations of U.S. equities.

Kwon’s authorized crew additionally argued the SEC’s expenses also needs to be dismissed as a result of the monetary watchdog didn’t present truthful discover or readability to Kwon and Terraform Labs relating to what actions ran afoul of U.S. legal guidelines.

Kwon argues the SEC misinterpreted its personal Howey Check as effectively. It’s the company’s four-pronged method for figuring out whether or not an asset is a safety based mostly on the funding of cash in a standard enterprise with the expectation of revenue derived from the trouble of others.

Kwon’s arguments relating to the lawsuit seize the authorized grey space that’s been surrounding crypto belongings, particularly stablecoins, within the U.S..

SEC Chair Gary Gensler has in contrast the stablecoins—which observe the worth of a sovereign forex just like the U.S. greenback—to “poker chips.” In the meantime, Federal Reserve Chairman Jerome Powell has stated they resemble financial institution deposits and cash market mutual funds.

Draft laws launched earlier this month that would supply a regulatory framework for stablecoins on the federal degree has up to now didn’t survive the legislative course of on Capitol Hill. The rating member of the Home Monetary Companies Committee, Rep. Maxine Waters (D-CA), just lately recommended that lawmakers are “ranging from scratch.”

The expectation of value stability—even when it was in the end unsuccessful—is much totally different than the expectation of revenue, a core pillar of the Howey Check, Kwon argued.

“UST will not be securities as a result of stablecoins are forex and thus particularly exempt from the federal securities legal guidelines,” Kwon’s legal professionals wrote in his movement to have the costs dismissed. “Like different currencies, UST served as a unit of account, a retailer of worth, and a medium of change.”

Nevertheless, the SEC claims that UST and different tokens grew to become securities resulting from statements made by Kwon and Terraform Labs in relation to the yield that traders may earn with the tokens deposited within the Anchor Protocol.

In accordance with the company’s criticism, Kwon and Terraform Labs “touted and market [the] Terraform-created ‘yield-bearing’ blockchain protocol,” which at one level supplied UST depositors a 20% APY that was marketed as “steady.”