Attorneys representing the United States Securities and Exchange Commission have formally requested the judge overseeing the civil case against Terraform Labs and co-founder Do Kwon to determine whether specific crypto assets should be classified as securities rather than leaving this decision to a jury.
In a filing dated December 4 in the U.S. District Court for the Southern District of New York, the SEC asserted that the classification of cryptocurrencies as securities under the commission’s guidelines is a matter of law to be decided by the court, emphasizing that it is not a factual question for the jury. The SEC argued that allowing the jury to decide whether certain cryptocurrencies in the Terraform Labs case met the criteria of securities under the Howey test—the commission’s benchmark for identifying securities—would open the door for debate.
“The defendants’ crypto asset offerings indisputably involved an investment of money in a common enterprise with an expectation of profit from the defendants’ efforts,” stated the SEC. The commission highlighted that there were no factual disputes regarding how the crypto assets were sold, the terms of those sales, or the marketing materials used by the defendants.
The SEC has consistently taken the stance of categorizing various cryptocurrencies as securities in different legal actions, including cases against Binance and Coinbase. Notably, in the SEC’s case against Ripple, a federal judge previously ruled that the XRP token did not inherently qualify as a security, potentially leading to dropped charges against CEO Brad Garlinghouse and executive chair Chris Larsen.
The ongoing debate among lawmakers and regulators in the United States revolves around determining which cryptocurrencies should be classified as securities or commodities, alongside discussions concerning the SEC’s role in regulating digital assets. Speculation among experts also suggests that the SEC might soon decide on the approval of the first spot crypto exchange-traded product.
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