Lawyers of former Terra boss Do Kwon have cited the recent XRP victory in the SEC lawsuit in a bid to dismiss the agency’s case against Kwon and Terra.
Do Kwon’s lawyers have turned to the recent victory secured by Ripple and XRP against the SEC to bolster their bid to dismiss the regulatory watchdog’s lawsuit against Terraform Labs and Kwon.
In a supplementary document filed on July 18, the legal team 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’ lawyers assert that the SEC’s claims against the tokens UST, LUNA, wLUNA, and MIR lack merit, drawing parallels to the Ripple ruling. According to the Ripple decision, certain sales of XRP did not meet the criteria to be classified as investment contracts under the Howey test.
The document argues that the SEC does not allege that UST was sold to anyone; instead, 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.
Terraform Labs’ Institutional Sales
Another critical aspect the defendants’ legal team raises is the differentiation between institutional sales in the two cases. Recall that the judge ruled that Ripple’s institutional sales of XRP constituted an investment contract.
Per Kwon’s lawyers, with Ripple, 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. They differed significantly from those in the Ripple case.
The lawyers contend that the Ripple ruling contradicts the SEC’s assertions about UST, LUNA, wLUNA, MIR, and mAssets being investment contracts. Consequently, they assert that this ruling supports the dismissal of the SEC’s fraud and registration claims against their clients.
The SEC vs. Terra Case
This latest move comes in the wake of the SEC’s lawsuit against Terraform Labs and Do Hyeong Kwon, where the SEC has alleged improprieties and misconduct that led to the collapse of the Terra ecosystem last May. The SEC filed the charges in February, nine months after the Terra implosion.
Amid the legal battle, last month, a Montenegrin court sentenced Do Kwon and his associate to four months in prison for falsifying travel documents. South Korean authorities also seek Kwon’s extradition to the country. Meanwhile, the SEC case has remained active in the US.
Notably, this is not the first time the defendants’ legal team has cited external developments in their defense. In a previous filing, they presented evidence regarding Congress’s ongoing debates over cryptocurrency regulation, suggesting that the SEC should wait for congressional action before pursuing enforcement.
XRP Victory Sets a Precedent
Judge Analisa Torres’s ruling in the Ripple case has significant implications for the ongoing litigation surrounding Terra. It adds weight to Kwon’s lawyers’ argument that the SEC’s case lacks a strong foundation and highlights discrepancies in the SEC’s approach to different crypto assets.
Several industry leaders have emphasized that the victory secured by XRP in the Ripple vs. SEC case will set a precedent in the crypto industry. They believe the industry will leverage it in the fight against the SEC’s perceived overreach.
