A federal judge has denied stablecoin issuer Terraform Labs’ motion to dismiss a lawsuit from the U.S. Securities and Exchange Commission (SEC). Judge Jed Rakoff, of the U.S. District Court for the Southern District of New York, said the SEC has sufficiently argued it has jurisdiction and asserted a plausible claim that TerraUSD (UST), the Anchor Protocol and LUNA may have violated securities law. He also rejected the use of a ruling from fellow Judge Analisa Torres, who recently ruled that Ripple Labs – another defendant against the SEC – did not violate securities law in making XRP available on secondary platforms for retail investors to purchase.
The SEC sued Terraform and founder Do Kwon earlier this year on charges of misleading investors about UST, a stablecoin pegged to the U.S. dollar through the LUNA token, and fraud. Terraform argued that people bought UST for practical purposes and did not have an expectation of it being an investment. Judge Rakoff said he rejected that approach, noting that Howey makes no such distinction between purchasers.
During the motion to dismiss stage, the facts in the SEC’s complaint must be assumed to be true, he noted, and the SEC said in its filing that Terraform had embarked on a public campaign to encourage both retail and institutional investors to buy UST. The judge also rejected Terraform Labs’ major questions doctrine objection.
The price of XRP fell around 2% after the ruling was published, dropping as low as $0.69 after reaching an intraday high of $0.72. It was trading around $0.70 as of press time.