The protection tried to attract a distinction between the failure of Terraform’s crypto belongings, whose threat profile it implied was nicely understood by buyers, and the acts of fraud alleged by the SEC. “Failure doesn’t equal fraud,” David Patton, legal professional to Kwon, reportedly instructed the courtroom in his opening assertion.
The protection additionally sought to undermine the credibility of the SEC whistleblowers, whom it reportedly urged have been in it just for the monetary reward. The protection dismissed the account of the previous Bounce worker as rumour and solid the Chai whistleblower as a disgruntled former staffer.
The protection additionally contended that Chai had utilized the Terraform blockchain, and argued that the SEC couldn’t show in any other case with out entry to the Chai supply code. The messages between Shin and Kwon about “pretend transactions,” Kwon’s attorneys claimed, associated to a unique venture completely.
The jury was in the end unconvinced.
Having been discovered liable, Kwon and Terraform will likely be dealt a monetary penalty, the dimensions of which will likely be confirmed by the choose at a later stage. They’ll seemingly be prevented from taking part within the US securities market sooner or later. However the implications of the case spill additional afield.
Earlier than the trial, the protection had known as for dismissal on the grounds that the SEC had misclassified UST, LUNA, and different Terraform tokens as securities—a particular class of economic instrument from which buyers anticipate to revenue—and, subsequently, lacked jurisdiction. The controversy over the suitable classification of crypto is central to a number of ongoing authorized disputes within the US, between the SEC and Ripple, Coinbase, and different companies. The crypto business has repeatedly accused the SEC of “regulation by enforcement”—of wielding authorized motion as an alternative of articulating clear guidelines for the street—and making a jurisdictional land seize.
Nonetheless, in an opinion issued earlier than the trial, Choose Jed Rakoff, who presided over the Kwon case in New York, rejected the arguments for dismissal. The SEC needs to be allowed to “resolve new and tough questions posed by rising applied sciences the place the applied sciences affect markets that on their face seem to resemble securities markets,” he dominated.
The opinion doesn’t set up a rule that different US judges are responsibility certain to comply with, however together with the decision in favor of the SEC, units a precedent of types for a crypto group having violated US securities legal guidelines. “This case is earlier than a well-respected choose who’s thorough and cautious. He’s influential,” says Lisa Bragança, legal professional at Bragança Legislation and former department chief on the SEC. “A choice from him will likely be cited again and again by fellow judges.”
Terraform had already signaled previous to the trial its intention to enchantment an unfavorable verdict, citing the anomaly over the right classification of its tokens. The absence of Kwon from the courtroom, which denied him the power to “sit on the counsel desk, hear the testimony of witnesses, and reply,” says Bragança, might help the enchantment bid.
Within the absence of legislative route from the US Congress, says Silva, the classification query will likely be settled solely when a crypto case strikes by the appellate courts, maybe arriving finally on the US Supreme Courtroom. “It’s an evolving space of the regulation,” he says. “It’s crystallizing with every case that comes down. It simply hasn’t crystallized but.”
From 4,500 miles away in Montenegro, Kwon could have performed his half.