A US judge denies Terraform Labs' motion to dismiss an SEC lawsuit, saying the SEC made a “plausible claim” that UST and LUNA may have violated securities law
ie directly to institutional investors versus to retail investors on exchanges. [image] John Reed Stark / @johnreedstark : Newsflash: Ripple Decision Already in (Big) Trouble SDNY District Judge Jed Rakoff today allowed the SEC to go forward with its case against Terraform Labs and founder Do Kwon. In doing so, Judge Rakoff specifically rejected the distinction made in the Ripple case between public... [image] Jeremy Hogan / @attorneyjeremy1 : What the Terra Judge doesn't know is that numerous XRP purchasers submitted unopposed affidavits that they didn't even know who or what Ripple was when they bought. That's why EVIDENCE matters. And there's no evidence in this case, yet. https://www.coindesk.com/... via @coindesk
Context & Ripple Effects
The SEC’s case followed its February complaint alleging that Terraform Labs and Do Kwon sold unregistered securities and ran a fraudulent scheme. The dismissal ruling matters because it kept that enforcement theory alive after the Ripple decision distinguished exchange sales from institutional sales.
Rakoff’s willingness to let the case proceed created a contrasting judicial signal on token classification. The dispute later supplied support for the SEC’s opposition to Coinbase’s own dismissal bid, before a court ultimately ruled Terraform had failed to register four cryptocurrencies.
First-order effects
- Terraform Labs and Do Kwon must continue defending the SEC action; the agency’s claims over UST and LUNA clear the pleading-stage threshold.
- The ruling rejects Terraform’s attempt to treat the Ripple distinction as sufficient grounds to end the case, leaving the legal treatment of its token sales to be tested on a fuller record.
Second-order effects
- The SEC gains a fresh in-court precedent to cite against crypto defendants seeking early dismissal, as its later use of the ruling in the Coinbase case illustrates.
- Token issuers and exchanges face less certainty from a favorable reading of Ripple alone: sales context and the alleged economic arrangement can remain central to securities-law analysis.
Third-order effects
- Divergent district-court approaches can make crypto compliance more dependent on litigation outcomes than on a single, settled rule, increasing the value of venue-specific precedent.
- If courts continue allowing these claims to proceed, enforcement litigation—not merely token labels—will help define the boundary between crypto products and regulated securities.
The trend: This is one data point in the SEC’s effort to establish crypto-market oversight through case-by-case securities litigation amid inconsistent judicial readings of token sales.