Judge Sets New Precedent in Terraform Labs’ SEC Lawsuit by Rejecting Ripple Ruling

The post Judge Sets New Precedent in Terraform Labs’ SEC Lawsuit by Rejecting Ripple Ruling appeared first on Coinpedia Fintech News

There has been a major shift in the legal struggle between stablecoin issuer Terraform Labs and the U.S. Securities and Exchange Commission (SEC). U.S. District Judge Jed Rakoff, ruling over the case, refused Terraform Labs’ motion to dismiss the SEC’s action against them on Monday.

While the SEC had already accused Terraform Labs and its founder, Do Kwon, of engaging in fraud and misleading investors about TerraUSD (UST), their stablecoin pegged to the U.S. dollar through the LUNA token.

However, Judge Rakoff’s ruling indicates that the regulatory agency has presented compelling arguments to establish jurisdiction over the case. Moreover, the judge stated that the SEC has a plausible claim that TerraUSD (UST), the Anchor Protocol, and LUNA may have violated securities laws.

Undoubtedly, this development sets Terraform Labs on a collision course with the SEC as the lawsuit moves forward, raising concerns within the cryptocurrency community about the potential implications for other projects in the industry.

Contrasting Ripple Labs Case Ruling

Unlike Ripple Labs’ recent case, Judge Rakoff’s ruling is different. U.S. District Judge Analisa Torres presided over the SEC’s action against Ripple Labs over XRP, the company’s digital coin. In that decision, Judge Torres distinguished between tokens sold directly to institutional investors and those sold to regular investors through secondary market transactions.

The actual reason behind Judge Rakoff’s rejection is the approach used in the Ripple case. He firmly stated that cryptocurrencies should not be classified based on how they are sold but rather on other properties of the assets. Even the Howey test cannot be the sole parameter for analyzing digital assets. This means that the manner of sale, whether to institutional or retail investors, should not impact whether the tokens are considered securities.

XRP Market Impact and Ripple’s Future

After Judge Rakoff’s ruling, the market reacted quickly. Coinbase stock dropped by 3 percent when the verdict was announced. And XRP, Ripple Labs’ native coin, had a 2.9% drop in value, although it still managed to close the day higher than its $0.69 low.

Most importantly, the verdict in the Ripple case has not been reversed by Judge Rakoff’s decision. But the SEC has hinted that it may file an appeal of the Ripple case verdict in an effort to overturn the distinction made by Judge Torres.

Whereas, the implications of this ruling extend beyond the Terraform Labs case. If Judge Rakoff’s interpretation gains traction and influences the appeals court in the Ripple case, it could bolster the SEC’s argument for broader regulation of cryptocurrencies. However, it remains uncertain whether the appeals court will uphold the original Ripple ruling or adopt Judge Rakoff’s perspective.