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Terraform Labs is seeking the dismissal of a class action lawsuit against the firm, arguing that the said U.S. securities laws do not apply to its foreign-developed protocols.
On May 3, Terraform Labs asked a California federal judge to dismiss an investor lawsuit filed by Nick Patterson alleging that the company was selling unregistered securities and misleading investors.
Lawyers for the firm, Dentons, argued that federal securities laws do not apply because the protocols were developed and used outside of the United States.
The Terra/Luna ecosystem collapsed in May 2022, wiping out billions of dollars from the cryptocurrency markets. The accident sparked numerous lawsuits against the firm, affiliated organizations such as the Luna Foundation Guard and company founder Do Kwon.
In June 2022, this particular class action lawsuit was filed alleging, among other things, that Terra tokens (UST and LUNA) are securities.
According to Law360, Terraform’s motion for dismissal argued that federal securities laws and the mail and wire fraud charges in the lawsuit only applied domestically.
“Federal securities laws don’t apply because the SAC [Вторая исправленная жалоба] does not claim that any of the protocols in question were developed domestically.”
The same argument applies to allegations in the RICO (Racketeer Influenced and Corrupt Organizations) lawsuit, which alleged that the firm’s purpose was to generate profits at the expense of retail investors, according to Terraform.
Nick Patterson, who filed the lawsuit on behalf of the investors, did not properly allege that allegations of wire and mail fraud took place domestically, it alleges.
The petition also states that the plaintiff was unable to locate the digital wallets containing his Terra tokens, debunking any “home injury” claims, according to Terraform.
Related: Do Kwon Converted Illegal Funds From LUNA To Bitcoin: South Korean Prosecutors
In February, the Securities and Exchange Commission sued Terraform and Do Kwon, with the regulator saying they orchestrated a multi-billion dollar securities scam.
In April, a South Korean court ruled that LUNA is not a security under the country’s Capital Markets Law.
On April 25, Terraform Labs co-founder Hyunseong Shin and nine individuals associated with the firm were indicted in South Korea.
They were reportedly charged with fraud, breach of trust and embezzlement and were taken to court after almost a year of investigation.