Terraform Labs asks judge to let jury decide if UST and LUNA tokens are securities

Terraform Labs, the creator of the failed Terra stablecoin (UST) and LUNA -4.86% cryptocurrency, asked a New York judge to let a jury decide the regulatory status of the tokens. The Securities and Exchange Commission, on the other hand, insists the matter should be decided by the judge.

The SEC sued Terraform Labs and its co-founder Do Kwon in February, alleging they raised billions from investors by “offering and selling an inter-connected suite of crypto asset securities, many in unregistered transactions.”

In a letter to judge Jed Rakoff on Monday, Terraform Labs lawyer David Kornblau said a jury should decide “whether or not the SEC has met its burden to prove” that UST, LUNA wLUNA, and MIR tokens are securities. The letter followed one submitted by the SEC in which the agency argued that a jury almost never decides whether something is an investment contract or not.

Whether a cryptocurrency should be deemed a security or not is a matter of multiple legal battles between the SEC and crypto firms. If a token meets the definition of an investment contract, typically using the so-called Howey test, the issuer must register with the SEC and make certain disclosures to investors.

Summary judgment

Terraform Labs previously asked the judge to issue a summary judgment in the defendant’s favor, instead of sending it to a full trial. However, if the judge chooses not to grant a summary judgment, Terraform Labs is asking to put the matter before the jury.

The company pointed at the precedent of Audet vs. Fraiser, a 2021 case where a jury decided that four cryptoassets were not securities. The SEC, in turn, argues that it was the only case in which a jury was asked to define whether something was an investment contract or not. The agency also argues that “there is no genuine dispute” of the fact that Terraform Labs were selling securities.

Do Kwon was arrested in Montenegro in March for using a fake passport. In late November, a local court approved his extradition.

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