Terraform Labs' LUNA and MIR Tokens Are Securities, Judge Rules

A U.S. federal judge ruled on Thursday that Terraform Labs, creator of the ill-fated Terra and Luna cryptocurrencies, violated federal securities laws when it sold its cryptocurrencies to the public.

Judge Jed Rakoff of the U.S. District Court for the Southern District of New York ruled in a summary judgment that Terraform Labs failed to register LUNA and MIR – another cryptocurrency in the Terra ecosystem – as securities.

The summary judgment could shape an eventual trial over Terraform's securities violations. Judge Rakoff denied both parties' efforts to exclude testimony from opposing expert witnesses who have studied the trading activity that led to UST's depegging in May 2022.

But the judge blocked two other defense witnesses, one of whom would have testified on activity in Terraform's custodial wallets, and the other who would have given the jury an overview of Terraform's crypto economy.

The ruling falls in line with the regulators' assertion that most cryptocurrencies ought to be classified as securities and fall under the agency's purview. The court's judgment only recognizes the SEC's right to oversee two cryptocurrencies, Luna and Mir, however.

Terraform Labs believes tokens in consideration are not securities.

"We strongly disagree with the decision and do not believe that the UST stablecoin or the other tokens at issue are securities. Further, the SEC’s fraud claims are not supported by evidence, and we will continue to vigorously defend against those meritless allegations at trial," Terraform Labs' spokesperson told CoinDesk in an email.

The SEC sued Terraform Labs earlier this year, following a rash of similar complaints it filed against several other key players in the cryptocurrency industry. The lawsuit's filing came just months after the notorious depegging of Terraform Labs' algorithmic stablecoin UST, which plunged the crypto industry into a deep winter.

5:14 UTC: Adds comments from Terraform Labs' spokesperson