Want to catch a ride with Ripple? U.S. judge rejects Terraform Labs' motion to dismiss.

U.S. judge Jed Rakoff, who is overseeing the Terraform Labs and Do Kwon case, rejected a motion yesterday to dismiss the lawsuit filed by Terraform Labs and its founder Do Kwon against the SEC. The denied motion is seen as a significant victory for the SEC.

Judge: Ripple Case Ruling Cannot Be Extended to Terraform Case

The law firm Dentons, representing Terraform Labs and Do Kwon, argued in a motion that the SEC has no authority to regulate stablecoins and has submitted several previous court rulings and related documents over the past three months in an attempt to dismiss the lawsuit.

Yesterday, Judge Jed Rakoff announced the dismissal of Terraform Labs' motion to withdraw, which is the SEC's allegation that its issuance of the UST stablecoin was unregistered.

He also emphasized the SEC's regulatory authority over the crypto market and rejected Terraform Labs' argument that Congress lacks clear legal authority to regulate cryptocurrencies.

It is worth noting that Judge Rakoff refused to apply the ruling of the Ripple case to the Terraform case and questioned the legitimacy of the ruling:

The judge in that case defined whether the token violated securities laws based on whether it was sold through secondary markets, according to the Howey Test assessing whether crypto assets are securities, this "distinction between purchasers" is not applicable, as it does not make that distinction.

He also pointed out that UST may be more fitting the definition of a security due to its potential collapse.

The decision is seen as a significant victory for the SEC, especially in the current context where the SEC is strengthening enforcement actions against crypto companies suspected of illegal token sales. If other judges follow Jed Rakoff's position and attitude, it would be favorable for the SEC.

The SEC did not respond, only stating that they will seek to maximize the return of investor funds and impose additional civil penalties.

Three Documents Argue UST Is Not a Security

Previously, the law firm Dentons representing Terraform Labs and Do Kwon utilized documents from U.S. congressional hearings, Binance.US trading records, and SEC internal emails from April to June to apply for the dismissal of the SEC's lawsuit against them. The main arguments are as follows:

• Binance.US trading records: They argue that UST is not a security and demonstrate through these trading records that TerraUSD (UST) stablecoin's trading behavior in the secondary market is that of an actual digital currency.
• SEC internal emails Hinman: Dentons attempts to show the uncertainty and inconsistency of the SEC's interpretation and confirmation of whether a product is an investment contract through the conversations of SEC members in the emails.
• House Financial Services Committee hearing records: Dentons references discussions in Congress on regulating digital assets and stablecoin issuance frameworks, pointing out the existing gray areas in cryptocurrency regulation.

In conclusion, Dentons hopes to present the view that "UST does not meet the definition of an investment contract" through the above documents and emphasize that it is a digital currency with practical use, not a security.

However, it is evident that the judge does not agree, and the trial of the case will continue to progress.