- Korean prosecutors in the Terra LUNA crash trial are intent on wielding Ripple’s partial victory against the SEC to substantiate their case.
- The Ripple ruling was centered on XRP’s status as a security, while the Terra LUNA trial is focused on a similar concern.
- Authorities are keen to leverage US court judgements to support their arguments that Terraform Labs’ sister tokens are not securities.
Ripple’s partial victory against a US financial regulator, through Judge Analisa Torres' has laid the foundation for leveraging the court ruling in other related cases in Korea.
Prosecutors in Terra LUNA’s trial in Korea are drawing leverage from the US court decision and plan on using the ruling to substantiate their arguments in court.
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Ripple ruling in SEC case to substantiate Korean prosecutors’ arguments
According to sources from the Seoul Prosecutor’s office, the Terra LUNA lawsuit is centered on the status of those tokens as “securities.” Prosecutors have revealed their plan to submit papers and judgements as evidence to prove that Terraform Labs’ sister tokens were not securities.
Chief Prosecutor Dan Seong-han of the Seoul Southern District Prosecutor’s Office states that the office has received a translation of the Ripple-related judgment from the Southern District Court of New York, requested by the Ministry of Justice.
Ripple’s partial victory against the SEC is considered key to substantiate prosecutor’s claims supporting LUNA’s status as a “non-security.”
Judge Analisa Torres of the Southern District Court of New York ruled in favor of Ripple on July 13, to the effect that the “investment contract” status of XRP could not be recognized. This ruling is the one that is expected to raise concerns in the Terra LUNA trial.
Chief Prosecutor Dan said,
The ruling acknowledged that the sale of its own tokens by the Ripple issuer to receive investment from institutional investors was the sale of unregistered investment securities.
SEC vs Ripple lawsuit FAQs
Is XRP a security?
It depends on the transaction, according to a court ruling released on July 14:
For institutional investors or over-the-counter sales, XRP is a security.
For retail investors who bought the token via programmatic sales on exchanges, on-demand liquidity services and other platforms, XRP is not a security.
How does the ruling affect Ripple in its legal battle against the SEC?
The United States Securities & Exchange Commission (SEC) accused Ripple and its executives of raising more than $1.3 billion through an unregistered asset offering of the XRP token.
While the judge ruled that programmatic sales aren’t considered securities, sales of XRP tokens to institutional investors are indeed investment contracts. In this last case, Ripple did breach the US securities law and will need to keep litigating over the around $729 million it received under written contracts.
What are the implications of the ruling for the overall crypto industry?
The ruling offers a partial win for both Ripple and the SEC, depending on what one looks at.
Ripple gets a big win over the fact that programmatic sales aren’t considered securities, and this could bode well for the broader crypto sector as most of the assets eyed by the SEC’s crackdown are handled by decentralized entities that sold their tokens mostly to retail investors via exchange platforms, experts say.
Still, the ruling doesn’t help much to answer the key question of what makes a digital asset a security, so it isn’t clear yet if this lawsuit will set precedent for other open cases that affect dozens of digital assets. Topics such as which is the right degree of decentralization to avoid the “security” label or where to draw the line between institutional and programmatic sales are likely to persist.
Is the SEC stance toward crypto assets likely to change after the ruling?
The SEC has stepped up its enforcement actions toward the blockchain and digital assets industry, filing charges against platforms such as Coinbase or Binance for allegedly violating the US Securities law. The SEC claims that the majority of crypto assets are securities and thus subject to strict regulation.
While defendants can use parts of Ripple’s ruling in their favor, the SEC can also find reasons in it to keep its current strategy of regulation by enforcement.
Can the court ruling be overturned?
The court decision is a partial summary judgment. The ruling can be appealed once a final judgment is issued or if the judge allows it before then. The case is in a pretrial phase, in which both Ripple and the SEC still have the chance to settle.
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