Attorneys representing the U.S. Securities and Exchange Commission (SEC) have requested a judge to decide whether specific crypto assets qualify as securities in a civil case against Terraform Labs and its co-founder Do Kwon, rather than leaving the determination to a jury.
In a filing on December 4 at the U.S. District Court for the Southern District of New York, the SEC argued that, based on the commission’s guidelines, the classification of cryptocurrencies as securities is "a question of law, not a question of fact, to be determined by the court" before a jury. The debate in the Terraform Labs case revolves around whether certain cryptocurrencies meet the criteria of securities under the Howey test, the SEC's standard for assessing securities.
The SEC asserted, “There is no real dispute that the material fact that Defendants’ crypto-asset offerings involved the investment of funds in a common enterprise with the expectation of receiving profits from Defendants’ efforts." The Commission contended that the key issues were clear without factual disputes, such as how Defendants’ crypto-assets were sold, the terms of those offers, or the content of Defendants’ marketing materials.
The SEC has a history of categorizing different cryptocurrencies as securities in various legal proceedings, including actions taken against Binance and Coinbase. Notably, in the SEC's case against Ripple, a federal judge ruled that XRP tokens may not necessarily be classified as securities, potentially leading to the dropping of charges against CEO Brad Garlinghouse and executive chairman Chris Larsen.
The debate over which cryptocurrencies fit the definitions of securities or commodities in the U.S. has remained an ongoing discussion among lawmakers and regulators. It also questions the role that the SEC should play in regulating digital assets. Speculation looms regarding the SEC's forthcoming decision on whether to approve spot cryptocurrency exchange-traded products for the first time, a move anticipated by many experts in the field.
