Aug 1, 2023

Stablecoin issuer Terraform Labs' motion to dismiss a lawsuit from the U.S. Securities and Exchange Commission (SEC) was denied by a federal judge on Monday.

Video transcript

A federal judge has now denied telecom Labs motion to dismiss an sec lawsuit. And with that raised fresh questions about the partial ripple victory. Joining us to discuss that is as global policy and regulation. Managing editor Nick Day who is also the editor of coined that stage of crypto news letter, Nick. Uh great to have you with us, uh that judge, uh you know, he rejected the use of another recent ruling that said ripple did not violate securities laws. You wrote that up at about 2 a.m. New York time. What else did the judge say? What's the meaning of that? Hey, good morning. Yeah. So, um this was the, yeah, as you noted the ruling in Terraform Labs motion to dismiss a lawsuit from the US Securities and Exchange Commission. Um, a couple of things to just kind of note right out of the eight. First off, this was just kind of an initial motion to dismiss. So the judge basically, you know, was looking at, does the sec have a plausible claim, does it have standing uh things like that? It wasn't really looking at the, uh you know, actual merits of the underlying case just is what's been filed so far sufficient to argue that the SEC has a case and it can continue to bring forward. And he ruled, yes, that is, you know, the, in his view, uh accurate. So he in his, uh you know, ruling uh right in their motions reform labs, you know, first off argued that the SEC didn't have, you know, standing, they tried arguing things like major questions doctrine, which of course is the uh you know, recent Supreme Court ruling uh where they basically said that regulatory agencies can't dramatically exceed their mandate. Um More recently, Ter blabs filed a brief saying, hey, you know, look at this brickle ruling where the judge said that uh you know, sales to retail investors through intermediary exchanges uh did not violate security laws. And the judge said, you know, in his view, that shouldn't matter. Um if the buyer, the investors are, you know, aware that at the beginning of the project, there is this central, you know, central entity that, you know, has managerial efforts that could impact the, you know, price of the token. It shouldn't really matter where exactly those investors are buying the tokens from. Uh He also uh pushed back against a major question doctrine usage in his uh ruling saying that the crypto industry, you know, while important is not quite at the level of the other major industries that meet the major questions Doctrine threshold. So it just in terms of, uh, where it stands in, in the courts that, you know, this is another court, uh, it, that it doesn't actually change anything involving the ripple case. Correct? I mean, that what does that conflict then do for, for people who aren't familiar with, uh, uh, with us legal system with, with how we work with the kind of kookiness we got here. Yeah. So, you're right, there's no practical effect right now. Um This is a single judge's opinion on, you know, again, a motion to dismiss. So, uh the case itself is gonna continue, there's still going to probably be, you know, a trial. We're gonna go through all the discovery, we're gonna eventually get to a ruling that could take years as we've seen the ripple case itself, right? The NCC has already kind of signaled that it might appeal this ruling, uh, you know, in their response to their reform labs after their form, you know, pointed to the ripple ruling said, you know, the judge should rely on it. So even there, we might still have to go through a couple of years of, you know, appeal court processes and depending on how far the parties are willing to take it potentially all the way up to the Supreme Court. So as far as last night's ruling is concerned, I think the crypto industry is still, uh should be in a kind of, you know, wait and see posture, uh, there isn't going to be a whole lot that's hugely presidential about that. The more interesting question to me honestly is the major questions with doctrine. That is an argument that a number of other crypto companies, including, for example, Coinbase have used in trying to dismiss their own lawsuits from the US Securities and Exchange Commission. And so, you know, if other judges agree with, you know, Judge Rakoff and that the industry is not, you know, big enough to warrant it, that could be, uh, you know, kind of detrimental to these other companies, efforts to dismiss those lawsuits. Yeah, we got to wait for the president. Thanks so much, uh, for that, uh, Nick, that was, uh, global policy and regulation managing editor Nick there. And, uh, as we always say, and Lawrence particularly, uh, says it in the most exciting way and entertaining way. Don't forget to sign up for the state of crypto newsletter on coin dot com.

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