The defense sought to distinguish between the failure of Terraform's crypto assets, which suggested its risk profile was well understood by investors, and the SEC's alleged fraud. Kwon's lawyer, David Patton, told the court in his opening statement that “failure is not the same as fraud.”
The defense also sought to undermine the credibility of the SEC's whistleblowers, with reports suggesting they engaged in whistleblowing solely for financial reward. The defense dismissed the former Jump employee's account as hearsay and identified the Chai whistleblower as a disgruntled former employee.
The defense also argued that Chai was using the Terraform blockchain, and that the SEC could not prove otherwise without access to Chai's source code. Mr. Kwon's lawyers argued that the messages between Mr. Shin and Mr. Kwon about the “fake transaction” were related to an entirely different project.
The jury was ultimately unconvinced.
Having been found responsible, Mr Kwon and Mr Terraform will be subject to financial penalties, the amount of which will be confirmed by a judge at a later stage. Participation in the U.S. securities market is likely to be hindered in the future. However, the impact of this incident will ripple further afield.
Before trial, the defense argued that the SEC misclassified UST, LUNA, and other Terraform tokens as securities (a specific type of financial instrument that investors expect to earn) and therefore lacked jurisdiction to dismiss them. I was looking for it. The debate over the proper classification of cryptocurrencies is at the center of multiple ongoing legal disputes in the United States between the SEC and Ripple, Coinbase, and other companies. The crypto industry has repeatedly accused the SEC of “enforcement regulation,” or usurping jurisdiction by using legal tools instead of setting clear rules of the road.
However, Judge Jed Rakoff, who presided over the Kwon case in New York, rejected the motion to dismiss in a pretrial opinion. He ruled that the SEC should be allowed to “solve new and difficult problems posed by emerging technologies that affect markets that superficially resemble securities markets.”
Although this opinion does not establish a rule that other U.S. judges are bound to follow, when combined with the verdict in favor of the SEC, it sets a precedent of sorts for cryptocurrency organizations that violate U.S. securities laws. Become. “This case is before a judge with a reputation for being thorough and careful. He has influence,” says Lisa Braganza, an attorney at the Braganza Law Firm and former SEC chapter chair. “His judgment will be cited many times by his fellow judges.”
Terraform had already indicated before the trial that it intended to appeal the adverse verdict, citing ambiguity surrounding the proper classification of the tokens. Kwon's absence from the courtroom denies him the ability to “sit at the defense table, listen to and respond to the testimony of witnesses,” which could support the appeal, Braganza said.
Silva said that without legislative direction from the U.S. Congress, the classification issue will only be resolved when cryptocurrency lawsuits make their way through the courts of appeals and perhaps ultimately reach the U.S. Supreme Court. “This is an evolving area of law,” he says. “It's crystallizing every time an incident occurs. It just hasn't crystallized yet.”
Kwon would do his part from Montenegro, 4,500 miles away.
