Crypto Assets

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Last year, the Court in SEC v. Terraform Labs suggested, by denying the defendants’ motion to dismiss, that the sale of a digital asset to the public on a secondary market may constitute a security.[1]  Now, the Court has determined, as a matter of law, that crypto assets are securities. [2] 

Three days before the end of the year, the Court issued a summary judgment opinion determining that there is no genuine dispute that Terraform’s four crypto assets—UST,[3] LUNA, wLUNA, and MIR[4]—were securities because they are investment contracts.  The Supreme Court in Howey defined an investment contract as “a contract, transaction or scheme whereby a person invests his money in a common enterprise and is led to expect profits solely from the efforts of the promotor or a third party.” [5][6]  All four crypto assets satisfied the Howey test. Continue Reading Judge Rules That Terraform’s Crypto Assets Are Securities

The issue of whether the sales of digital assets constitute investment contracts (and therefore securities) remains at the forefront of SEC regulatory issues. Yesterday, in SEC v. Terraform Labs, a federal judge in New York rejected a fellow judge’s recent ruling in SEC v. Ripple Labs[1] that XRP was not a security when sold to the public on secondary markets.

On Monday, U.S. District Judge Jed Rakoff denied Terraform Labs’ motion to dismiss an SEC enforcement action.[2] In that case, the SEC alleged that Terraform Labs and its founder, Do Kwon, defrauded investors and sold digital assets in unregistered securities offerings. In its motion to dismiss, Terraform Labs argued that purchasers of UST did not have an expectation of it being an investment. In allowing the SEC’s case to proceed against Terraform Labs and Kwon, Judge Rakoff declined to follow the recent ruling in SEC v. Ripple.Continue Reading Federal Court in Terraform Labs Rejects Ripple Decision

On May 3, the SEC announced that the Cyber Unit in the Division of Enforcement is renamed the “Crypto Assets and Cyber Unit” and will expand by 20 positions to approximately 50 positions.[1]  Regulation of digital assets has been a key initiative of SEC Chair Gary Gensler, who previously chaired the CFTC.

The press release emphasizes the explosion of crypto markets in recent years and says that the Crypto Assets and Cyber Unit will be vital to protect investors and efficiently regulate financial markets.  The expanded unit will concentrate on investigating securities violations relating to:
Continue Reading SEC Expands and Renames Cyber Unit to “Crypto Assets and Cyber Unit”