Terraform Labs violated federal securities law when it sold its cryptocurrency to the public, according to a ruling by a U.S. federal court on Thursday.

Judge Jed Rakoff of U.S. District Court Southern District of New York ruled that Terraform Labs had failed to register LUNA, MIR – another cryptocurrency within the Terra ecosystem – as securities.

Summary judgment may influence a future trial regarding Terraform’s securities violation. Judge Rakoff rejected both parties’ attempts to exclude testimony of opposing expert witnesses that have studied the trading activities that led to UST depegging May 2022.

The judge also blocked two more defense witnesses. One would have provided testimony on Terraform’s custody wallets and the second would have given a jury a summary of Terraform’s crypto economy.

The court’s decision is in line with regulators’ claims that the majority of cryptocurrencies should be classified as securities, and therefore fall under their jurisdiction. However, the court’s ruling only acknowledges that the SEC has the right to supervise two cryptocurrencies: Luna and Mir.

Terraform Labs does not consider tokens to be securities.

We strongly disagree with this decision, and we do not consider the UST stablecoin to be a security. Terraform Labs spokesperson said in an email that the SEC’s claims of fraud are unsupported by any evidence. We will vigorously defend ourselves against these meritless accusations at trial.

Terraform Labs was sued by the SEC earlier this year after it filed a number of complaints against other major players in cryptocurrency. The SEC filed the lawsuit just months after Terraform Labs depegged its algorithmic stablecoin, UST. This caused the crypto market to plunge into a deep freeze.

Commentary from Terraform Labs spokesperson

Danny Nelson is the editor.