Terraform Labs and the SEC are gearing up for a trial next month, with Jump Trading in the spotlight. Following a ruling by US District Judge Jed S. Rakoff, the SEC’s fraud case against Terraform is set to be tried by a jury. Rakoff found Terraform liable for selling unregistered securities but dismissed claims of transactions in unregistered security-based swaps. The civil trial is scheduled for Jan. 29 in Manhattan federal court.
Jump Trading’s Role
This legal battle will test the SEC’s aggressive stance on crypto enforcement and shed light on Jump Trading’s role as a significant trader of Terraform’s TerraUSD and Luna tokens. The SEC alleges that Terraform clandestinely collaborated with Jump to support TerraUSD a year before its collapse.
Rakoff acknowledged the SEC’s compelling but circumstantial evidence, relying on Jump whistleblowers’ testimony, whose credibility the jury will evaluate. Notably, Jump hasn’t faced any accusations of wrongdoing in this case.
The SEC filed a lawsuit in February against Terraform and co-founder Do Kwon, claiming they orchestrated a fraudulent scheme causing a market value loss of at least $40 billion. Kwon faces fraud charges in the US but is currently in custody in Montenegro.
The ruling highlighted a former Jump employee turned SEC whistleblower’s sworn declaration, implicating a Jump co-founder in the decision to restore TerraUSD’s peg to the US dollar. The whistleblower stated the co-founder was willing to risk around $200 million to help restore the peg.
Despite the ruling favoring the SEC, Terraform vehemently disagrees, asserting that the UST stablecoin and other tokens aren’t securities. The company is determined to vigorously defend against the SEC’s allegedly unsupported fraud claims during the upcoming trial.
In the part of the ruling favoring Terraform and Kwon, Rakoff stated that Terraform’s “mAssets” didn’t constitute security-based swaps. He argued that the SEC failed to demonstrate how financial risk would be transferred to a counterparty, a requirement for a security-based swap.
Rakoff granted the SEC’s request to exclude testimony from two defense experts. The trial, titled Securities and Exchange Commission v. Terraform Labs Pte., is set to take place in the US District Court, Southern District of New York.