Terraform Labs Shocks SEC As Lawyers Cast Doubt On The Regulator’s Conduct

Terraform Labs has landed a huge blow against the Securities and Exchange Commission (SEC) in its ongoing legal battle with the Commission. Lawyers representing the crypto firm have called the Commission’s conduct into question and used a recent case to back up its argument on why judgment should be given in their favor. 

Terraform Labs Alludes To Another Case To Support Motion

In a court filing dated December 4, the defendants cited the SEC’s case against Digital Licensing as a supplementary authority in support of their motion for summary judgment. They noted how the judge in the case, Chief Judge Robert Shelby, had issued a decision and order to show cause against the Commission. 

The court in the Digital Licensing case had found that the SEC made misrepresentations that were so serious and ordered the Commission to show cause why it should not be sanctioned. Terraform Labs’ lawyers highlighted how the decision in that case was relevant to their arguments on the “SEC’s general use of excerpts of evidence” and certain allegations. 

The defendants will be hoping that the court’s ruling in the cited case will influence Judge Rakoff, the Judge in charge of their case, to rule in their favor. They specifically mentioned their motion for summary judgment which they had filed on October 27, as Terraform Labs is of the belief that the SEC doesn’t have a case as a matter of law. 

The SEC had previously scored a major win in this case when Judge Rakoff examined whether the Terra tokens were securities and ruled that the SEC had sufficiently proven that the UST and LUNA coins could be regarded as securities. As such, it remains to be seen if Judge Rakoff will be inclined to rule in Terraform Labs’ favor this time around. 

The SEC Getting It Wrong In The Eyes Of The Law

The Commission can be said to be getting it wrong in its crypto enforcement actions. The most notable of them happens to be its case against Ripple, which has so far been a total disaster for the Commission. After years of its insistence that XRP was a security, Judge Analisa Torres provided some clarity when she ruled that XRP wasn’t a security in itself.

In all of this, a pattern seems to be emerging, which suggests that the Commission might be more focused on its beliefs rather than what the law says. Ripple’s Chief Legal Officer Stuart Alderoty recently spoke about this “troubling pattern.” He mentioned how the court found that the Commission had demonstrated “hypocrisy” in the Ripple case. 

Similarly, the court had also found that the SEC had acted in an “arbitrary and capricious” manner in the way it handled Grayscale’s application. The latest of them happens to be the Digital Licensing case, where the SEC resorted to making misrepresentations just to have its way.