Judge denies Terraform Lab's request for dismissal, also rejects XRP ruling TerraformLabs Terra Luna
- The judge overseeing the Securities and Exchange Commission’s lawsuit against Terraform Labs has ruled that the case will proceed after denying the firm's motion to dismiss on Monday.
In his ruling on the request for dismissal, Judge Jed Rakoff of the Southern District Court of New York said, “Because the defendants used false and materially misleading statements to entice U.S. investors to purchase and hold on to defendants’ products, and because those products were unregistered investment-contract securities that enabled investors to profit from the supposed investment activities of defendants and others, the motion to dismiss must be denied.
Rakoff specifically pushed back against the distinction between individual investors and retail investors, where Judge Torres ruled that “institutional buyers reasonably expected that Ripple would use the capital it received from its sales to improve the XRP ecosystem and thereby increase the price of XRP,” while those who purchased their coins through secondary transactions had no reasonable basis to expect the same.
“Indeed, if the Amended Complaint’s allegations are taken as true – as, again, they must be at this stage – the defendants embarked on a public campaign to encourage both retail and institutional investors to buy their crypto-assets by touting the profitability of the cryptoassets and the managerial and technical skills that would allow the defendants to maximize returns on the investors’ coins,” he said.
John Reed Stark, an expert in digital regulatory compliance and a former SEC enforcement attorney, applauded Rakoff’s decision, and anticipates there will be more rejection of Judge Torres’ decision.
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