Research Summary
The report discusses two main topics: the SEC’s lawsuit against Terraform Labs and Do Kwon, and Senator Elizabeth Warren’s criticism of former national security officials’ involvement in the crypto industry. The SEC accuses Terraform Labs and Do Kwon of fraudulent activities and violating federal securities laws. Meanwhile, Senator Warren criticizes the “revolving door” practice of former government employees joining the crypto industry.
Key Takeaways
SEC vs Terraform Labs and Do Kwon
- Legal Battle: The SEC has accused Terraform Labs and Do Kwon of fraudulent activities leading to a loss of at least $40 billion of market value and violating federal securities laws by offering and selling unregistered securities. The case will proceed to trial.
- Expert Witnesses: The court has allowed the SEC to call two expert witnesses, while the defendants can call one of their three proposed witnesses.
- Unregistered Securities: The court ruled that Terraform Labs and Do Kwon offered and sold unregistered securities, meeting the elements of the Howey test. The defendants’ argument that the Howey test is outdated and not applicable to modern cryptocurrencies was rejected.
- mAssets: The court dismissed the SEC’s claim that the defendants offered unregistered security-based swaps in the form of mAssets, ruling that an mAsset does not meet the statutory definition of a security-based swap under the Commodities Exchange Act.
Warren’s Criticism of Former National Security Officials’ Involvement in Crypto
- Revolving Door Criticism: Senator Elizabeth Warren criticized the practice of former national security and military service members joining the crypto industry after their government service, terming it as a “revolving door”.
- Industry Response: The Blockchain Association, Coin Center, and Coinbase defended the practice, arguing that it is common across industries and that these former government employees provide valuable insight and guidance to private companies.
Actionable Insights
- Understanding Legal Implications: Companies in the crypto industry should closely monitor the SEC vs Terraform Labs case to understand the potential legal implications and risks associated with offering and selling unregistered securities.
- Regulatory Compliance: Crypto companies should ensure strict compliance with federal securities laws to avoid legal issues and potential losses.
- Engaging Experts: Crypto companies could consider engaging former government officials for their expertise and guidance, despite criticisms of the “revolving door” practice.
