SEC Challenges Dismissal Motion in Terraform Labs Lawsuit

Attorneys for the United States Securities and Exchange Commission (SEC) have argued that the additional documents submitted by Dentons, the law firm representing Terraform Labs and Do Kwon, in support of its motion to dismiss the lawsuit lack sufficient grounds for dismissal.

Counsel for the SEC asserts that the transcript from Binance.US and internal SEC correspondence presented by the defense are irrelevant to the case.

They contend that the Howey test plainly defines the parameters of an “investment contract” and that TerraUSD (UST) should be categorized as a security.

During a court hearing on June 15, Dentons submitted additional documents to support its motion to dismiss the U.S. SEC’s lawsuit.

The hearing aimed to determine whether the digital assets created by Terraform Labs should be categorized as securities based on the criteria of an “investment contract.”

Dentons asserts that the algorithmic stablecoin, UST, is not categorized as a security, emphasizing its utility rather than its status as an investment contract.

It submitted supplemental documents in support of its motion to dismiss the lawsuit, including the U.S. House Financial Services Committee hearing on digital asset regulation and stablecoin issuance, the SEC’s request for a restraining order against Binance.US, and the Hinman emails from the SEC vs. Ripple lawsuit.

The defense attorneys highlighted a “regulatory gap” regarding classifying crypto assets as securities, primarily as the U.S. Congress discusses regulatory frameworks for issuing digital assets and stablecoins.

In addition, they argued that the SEC exceeds the scope of securities laws by using internal communications about “investment contracts” to determine the security status.

The case’s presiding judge, Jed Rakoff, has announced that a ruling on the motion to dismiss the case will be rendered by July 14.

Dentons previously represented Kwon in a 2021 challenge to the U.S. SEC subpoena in its investigation of the Mirror Protocol and a 2022 class action lawsuit in the Singapore High Court.

The law firm represents Terraform Labs in additional legal matters.

Meanwhile, the Basic Court in Podgorica, Montenegro, has granted parole to Kwon and Han Chang-Joon, the former chief technology officers of Terra.

Kwon was recently detained in Montenegro pending the court’s decision regarding South Korea’s extradition request for the Terra founder.