Next month, Terraform Labs, the US Securities and Exchange Commission (SEC), and Jump Trading are set for a courtroom showdown. A judge’s decision to put the SEC’s fraud case against Terraform before a jury has set the stage for a trial.
US District Judge Jed S. Rakoff recently sided with the SEC, affirming Terraform’s responsibility for selling unregistered securities. However, the judge dismissed claims about transactions involving unregistered security-based swaps. The civil trial is scheduled to kick off on January 29 in a federal court in Manhattan.
This trial isn’t just about legalities; it’s a litmus test for the SEC’s assertive crackdown on the crypto industry. It’s also expected to shed light on Jump Trading’s involvement as a significant trader of Terraform’s TerraUSD and Luna tokens. Allegedly, Terraform struck a clandestine deal with Jump, a Chicago-based trading firm, to support TerraUSD a year prior to its collapse.
Judge Rakoff acknowledged the SEC’s evidence regarding this alleged arrangement as “convincing but indirect,” primarily reliant on testimony from whistleblowers associated with Jump, whose credibility will be weighed by the jury.
Interestingly, Jump hasn’t been implicated in any wrongdoing within this case, even though whistleblower accounts have pointed fingers at one of its co-founders for playing a role in TerraUSD’s peg restoration.
The legal saga involves Terraform’s co-founder Do Kwon, who, despite facing fraud charges in the US, remains in custody in Montenegro, having been apprehended with a fake passport. Moreover, Kwon is sought after in South Korea, his home country.
Rakoff’s ruling referenced a statement by a former Jump employee turned SEC whistleblower. This individual claimed that a Jump co-founder, whose identity remains undisclosed, was involved in decisions to stabilize TerraUSD’s value. The whistleblower also alleged directions from this co-founder to manipulate trading models controlling TerraUSD’s price and orders.
The judge’s decision partly favored Terraform and Kwon, specifying that certain tokens linked to real-world assets didn’t constitute security-based swaps due to specific collateral requirements, a point the SEC failed to contest convincingly.
The SEC’s request to exclude testimony from two defense experts was granted by Judge Rakoff.
The legal battle, titled Securities and Exchange Commission v. Terraform Labs Pte., is expected to unfold in the US District Court for the Southern District of New York (Manhattan).
