SEC's Latest Move Revealed, Terraform Verdict Influences Ongoing Case Developments

The Securities and Exchange Commission (SEC) has presented a Notice of Supplemental Authority to apprise the Court about a recent verdict in the SEC v. Terraform Labs case.

The ruling, issued on December 28, 2023, marked a resolution in favor of the SEC on multiple issues regarding those raised by the Defendants in the current case.

The Court’s opinion in Terraform holds significance in evaluating motions put forth by Defendants BAM Trading Inc. and BAM Management US Holdings Inc. for dismissal. In fact, Defendants Binance Holdings Limited and Changpeng Zhao filed a Joint Motion to Dismiss the Complaint, while the SEC submitted an Omnibus Memorandum of Law opposing the Defendants’ Motion to Dismiss. Both motions relate to the Terraform court's earlier denial of the motion to dismiss the SEC’s complaint in that case.

The Terraform court’s recent ruling draws parallels to key aspects raised in the ongoing case:

Firstly, the Court rejected attempts to overturn established legal doctrines, emphasizing the Supreme Court's definitive stance on the definition of an "investment contract."

Echoing the Howey test, the court stressed that an investment contract involves an individual investing money in a common enterprise with the expectation of profits solely from the efforts of a promoter or third party.

Secondly, drawing from the Howey definition, the Terraform court deemed the crypto assets in question—UST, LUNA, wLUNA, and MIR—as investment contracts and consequently, securities. Notably, the analysis of Terraform’s stablecoin UST draws relevance to arguments presented in this case concerning Binance’s BUSD and related programs.

Thirdly, the Terraform court affirmed the SEC’s claim of defendants violating Section 5 of the Securities Act of 1933 by conducting unregistered offers and sales of crypto assets LUNA and MIR, even when sold on crypto trading platforms like Binance. This reaffirms that the manner of sale does not alter the classification of crypto assets as securities.

Lastly, the Terraform court’s interpretation underscores the focus on whether defendants offered and sold securities to U.S. investors, reinforcing the SEC’s stance in this case.

In the documents, it is mentioned that the SEC’s submission asserts that the Terraform court’s opinion fortifies grounds to deny the Defendants’ motions to dismiss in the ongoing case.

It is worth noting that the ongoing legal issues between Binance, Terraform Labs, and the SEC underscores the undeniable shifts within the cryptocurrency landscape. With the recent Terraform verdict resonating in the current case, the SEC's persistence in defining investment contracts and securities in the crypto sphere takes center stage.

The echoes of Terraform's judgment ripple through, particularly with Binance's stablecoin BUSD and associated programs under scrutiny. As both entities navigate the legal maze, these cases stand as pivotal moments, shaping the regulatory landscape for cryptocurrencies and their market offerings.