Monday saw a significant twist in the cryptocurrency regulatory saga, as Judge Jed Rakoff of the U.S. District Court for the Southern District of New York rejected the dismissal motion by Terraform Labs in a lawsuit brought by the U.S. Securities and Exchange Commission (SEC). Rakoff dismissed the precedent set by the recent Ripple Labs ruling, causing ripples throughout the crypto community.
Terraform’s Troubles
Terraform Labs, creators of TerraUSD (UST), Anchor Protocol, and LUNA, fell afoul of the SEC over allegations of misleading investors and possible securities law violations. The company’s attempt to utilize the recent Ripple ruling as a defensive strategy was summarily dismissed by Judge Rakoff, propelling the case into uncharted legal waters.
The controversial decision by Judge Rakoff deviates from a precedent established by fellow Judge Analisa Torres in the Ripple Labs case. Judge Torres had distinguished between Ripple’s XRP token sales to institutional investors and its availability on secondary platforms for retail investors. Rakoff, however, rejected this approach, arguing that the Howey Test, a standard in U.S. law for determining whether certain transactions qualify as investment contracts, does not distinguish between types of purchasers.
Also Read – Ripple Decision Faces Scrutiny Again: Ripple CTO Defends it
Howey vs. Ripple
John Deaton, a prominent lawyer in the crypto sphere and founder of CryptolawUS, weighed in on the legal drama. He stressed that Judge Torres’ ruling in Ripple’s case applied the Howey factors to undisputed facts at summary judgement, and that the SEC had failed to provide evidence that retail investors were relying on Ripple.
The surprise verdict immediately impacted the crypto market, with the price of Ripple’s XRP falling around 2%. Legal minds such as Jeremy Hogan, a lawyer heavily involved in the crypto community, emphasized the importance of evidence, pointing out that many XRP purchasers were unaware of Ripple’s existence when buying the token.
Read More: ‘Anti-Crypto Army’ Would Have Risen If SEC Won Against Ripple, Claims Deaton
The “Major Questions Doctrine” Debated
Adding to the complexity of the case, Judge Rakoff also rejected Terraform Labs’ use of the “major questions doctrine,” a legal argument that limits regulatory agencies from exceeding their mandates. Rakoff ruled that the crypto industry does not meet the required “vast economic and political significance” for the doctrine to apply.
What are your thoughts on the Howey Test? Was the judge’s decision correct?
Source: https://coinpedia.org/news/john-deaton-weighs-in-howey-vs-ripple-shakes-market-xrp-falls-2/