SEC Requests Court’s Intervention in Classifying Terra's Crypto Assets as Securities

By: Eliza Bennet

The U.S. Securities and Exchange Commission (SEC) has proposed that the court, and not the jury, should decide on the security status of Terraform Labs' crypto assets. The regulator's letter to Judge Jed Rakoff earmarks how the crypto assets should be classified under legally recognised security definitions. The rationale behind this move is based on the Howey Test, which historically has been decided in the purview of the judiciary without the involvement of a jury.

Such a stance by the SEC argues that Terra's crypto offerings satisfy all compartments of the Howey test, which reflects an investment of money in a common enterprise with expectations of profit from the efforts of others. The events unfolding in this case will have a significant impact on the regulatory status of cryptocurrencies and related assets in the expanding digital currency market.

The SEC initiated legal action against Terraform Labs PTE Ltd and its CEO, Kwon Do-hyung earlier this year. Charges were filed related to the orchestration of a multi-billion dollar crypto asset securities fraud involving an algorithmic stablecoin and other crypto asset securities. Furthermore, Terraform Labs also put forth a request for a summary judgment in their legal battle.