The United States Securities and Exchange Commission\u2019s (SEC\u2019s) lawsuit against Terraform Labs and its co-founder Do Kwon could be seen as an SEC \u201croadmap\u201d to taking down other stablecoins, according to a lawyer.<\/p>\n
Gabriel Shapiro, general counsel at investment firm Delphi Labs, explained to his 33,800 Twitter followers on Feb. 16 that the SEC\u2019s arguments in its complaint against Kwon and Terraform were \u201cmore thorough than usual.\u201d<\/p>\n
\nwhew lad, lots to digest in the SEC lawsuit vs Do Kwon and Terraform Labs <\/p>\n
right off the bat, a very interesting fact is that the SEC is being more thorough than usual–specifically running through the Howey test for various assets (UST, LUNA, and wLUNA) and also alleging that\u2026 https:\/\/t.co\/1JsBQijMnw<\/a> pic.twitter.com\/qHuL6mKpeo<\/a><\/p>\n
\u2014 _gabrielShapir0 (@lex_node) February 16, 2023<\/a><\/p><\/blockquote>\n
Shapiro\u2019s analysis follows the SEC\u2019s Feb. 16 lawsuit against Kwon and Terraform<\/a>, alleging they \u201corchestrate[d] a multi-billion dollar crypto asset securities fraud involving an algorithmic stablecoin and other crypto asset securities.\u201d <\/p>\n
Shapiro suggested the case could serve as a \u201croadmap\u201d for how the regulator may sue other stablecoin issuers in the future. He acknowledged the SEC made the case that Terra\u2019s algorithmic stablecoin, TerraClassicUSD (USTC), formerly TerraUSD (UST), constitutes a security:<\/p>\n
\u201c[The SEC] will allege that integration, promotion, marketing, commercial deals etc building the stablecoin ecosystems are \u2018efforts of others\u2019 that are \u2018reasonably expected\u2019 and can lead to profits in connection with the stables.\u201d<\/p><\/blockquote>\n
He pointed out the SEC applied the four prongs of the Howey test\u00a0to argue that USTC, Terra Classic (LUNC) \u2014 formerly called Terra (LUNA) \u2014 and Wrapped LUNA Classic (WLUNC) all constituted securities under U.S. securities laws.<\/p>\n
Delphi Labs General Counsel Gabriel Shapiro\u2019s take on the SEC\u2019s lawsuit against Terraform Labs and its CEO Do Kwon. Source: <\/em>Twitter.<\/em><\/a><\/figcaption><\/figure>\n The SEC also argued that Terraform Labs breached U.S. securities laws by launching the Mirror Protocol, which allowed its users to create what Terraform called a \u201cmAsset\u201d \u2014 a crypto version of an asset that \u201cmirrors\u201d the price behavior of other assets such as stocks.<\/p>\n
The regulator claimed Terraform Labs committed this securities-based swap through the Mirror Protocol (MIR) token \u2014 which Shapiro believes to be a \u201cfirst\u201d in cryptocurrency-related lawsuits filed by the SEC. <\/p>\n
Shapiro noted the SEC\u2019s claim that wLUNA constituted a \u201creceipt\u201d for a security was another \u201cfirst.\u201d<\/p>\n
Delphi Labs general counsel Gabriel Shapiro\u2019s analysis on the SEC\u2019s lawsuit filing against Terraform Labs and its CEO Do Kwon. Source: <\/em>Twitter.<\/em><\/figcaption><\/figure>\n Ryan Sean Adams, the host of the crypto-oriented podcast Bankless, made a similar argument to his 221,300 Twitter followers on Feb. 16, noting that a legal victory against Terraform Labs would make it easier to go after other stablecoin issuers.<\/p>\n
\nGensler’s next strategy is to go after Do Kwon and UST because he knows no one will defend them and if he wins he’ll establish broad precedent for more control over crypto.<\/p>\n
It’s evil genius. https:\/\/t.co\/FDLoeVcTLb<\/a><\/p>\n
\u2014 RYAN S\u039eAN ADAMS – rsa.eth (@RyanSAdams) February 16, 2023<\/a><\/p><\/blockquote>\n
The Terra-linked tokens\u00a0infamously crashed<\/a> in May 2022, which was partly triggered when USTC lost its peg to the U.S. dollar. As LUNC was closely linked to USTC, its price fell by almost 100% and triggered a wider downturn in the crypto markets, wiping out approximately $40 billion.<\/p>\n
Related: <\/em><\/strong>Why the SEC wants to ban crypto staking and stablecoins under scrutiny \u2014 watch the Market Report live<\/em><\/strong><\/a><\/p>\n
Kwon maintains that he is not \u201con the run\u201d and is believed to reside in Serbia<\/a>, according to South Korean officials who issued a warrant for his arrest.<\/a><\/p>\n
Earlier in February, two South Korean prosecutors flew to the Balkan state to find Kwon; however, the search attempt was unsuccessful.<\/p>\n
Cointelegraph contacted Terraform Labs for comment on the lawsuit but received no response by publication time.<\/p>\n<\/div>\n
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