Lawyers representing the United States Securities and Exchange Commission (SEC) requested the judge in its civil case against Terraform Labs and co-founder Do Kwon determine whether certain crypto assets are securities rather than a jury.
In a Dec. 4 filing in U.S. District Court for the Southern District of New York, the SEC argued that the matter of cryptocurrencies as securities under the commission’s guidelines was a “legal question to be determined [by] the Court, not a factual question for the jury.” According to the SEC, sending the question of whether certain cryptocurrencies in the Terraform Labs case qualified as securities under the Howey test — the commission’s standard for determining what is a security — opened the matter up for discussion.
“[T]here is no genuine dispute of material fact that Defendants’ crypto asset offerings involved an investment of money, in a common enterprise, with an expectation of profit to be derived from Defendants’ efforts,” said the SEC. “While the Court may submit questions to the jury to resolve factual disputes as to the underlying elements […], there are no such disputes here. There are no factual questions concerning how Defendants’ crypto assets were sold, the terms of those offers and sales, or what Defendants said in their marketing materials or promotions surrounding them.”
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The SEC has taken it upon itself to label different cryptocurrencies as securities in various lawsuits, including enforcement actions against Binance and Coinbase. In the commission’s case against Ripple, a federal judge ruled in July that the XRP token did not necessarily qualify as a security, potentially leading to the SEC dropping charges against CEO Brad Garlinghouse and executive chair Chris Larsen.
The question of which cryptocurrencies qualify as securities or commodities in the United States has been an ongoing debate among lawmakers and regulators, as is the role the SEC should play in regulating digital assets. Many experts are also speculating the SEC may soon decide on whether to approve a spot crypto exchange-traded product for the first time.
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