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Why SEC vs Terraform could cast a pall over the Ripple verdict

3min Read

Terraform Labs’ hope to use the Ripple ruling as its defense against the SEC suffered a blow as the judge chose a different interpretation of the Howey test.

Why SEC vs Terraform could cast a pall over the Ripple verdict

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  • A judge recently ruled that UST could be categorized as a security.
  • The Howey test was interpreted differently, casting doubt on the Ripple ruling.

The Ripple [XRP] ruling was initially seen as a victory for cryptocurrency, but Terraform Labs is now discovering that the tides may not favor them. In a recent verdict, a foundation has emerged that could potentially challenge the Ripple ruling. 

How much are 1,10,100 LUNAs worth today?

With Terraform Labs facing uncertainty with this new development, an air of intrigue and suspense has been added to the crypto landscape.

Terraform dealt a blow

On 31 July, a federal judge dealt Terraform Labs a blow by denying their motion to dismiss a lawsuit filed by the U.S. Securities and Exchange Commission (SEC).

The judge ruled that the SEC’s argument about having jurisdiction over the case, and the potential violation of securities law by TerraUSD [UST], the Anchor Protocol, and Terra [LUNA] was sufficiently strong to proceed with the lawsuit.

Furthermore, Judge Jed Rakoff of the U.S. District Court for the Southern District of New York took a different stance from Judge Analisa Torres regarding the Ripple Labs case. Judge Torres had previously ruled that Ripple Labs did not violate securities law when offering XRP on secondary platforms. 

According to her, retail investors couldn’t have known they were purchasing XRP directly from Ripple because they bought the token on intermediary exchanges through Ripple’s programmatic sales.

However, Judge Jed Rakoff disagreed with this perspective and interpreted the Howey test distinctly. He asserted that the distinction between direct and secondary resale purchasers should not affect whether a reasonable individual perceives the defendants’ actions and statements as promising profits based on their efforts.

In his view, the Howey test does not draw such a line, and it makes sense not to do so. Regardless of how the coins were acquired, if a reasonable expectation of profit exists, the test should apply uniformly to all purchasers.

Possible implications of diverging Ripple and Terraform rulings

Following the Ripple ruling, discussions emerged about the possibility of an SEC appeal due to perceived inadequacies in the initial judgment. While it is important to note that the Ripple and Terraform cases have different circumstances, their rulings have paved the way for diverse interpretations of the Howey test.

The outcome of these cases may lead to varying judgments, creating uncertainty and affecting the much-needed clarity that the cryptocurrency space has been striving for. With the different interpretations of the Howey test, there are implications for the regulatory landscape.

How Luna and XRP reacted

As of the current update, the assets tied to Terraform Labs exhibited various trends on the daily timeframe chart. LUNC was experiencing a loss of more than 1%, and the chart indicated a consistent bearish trend over the past few days.

Terraform LUNC/BUSD price trend

Source: TradingView

On the other hand, LUNA had a different outlook on the same timeframe. It was not trading at a loss but hasn’t shown any significant gains either.

However, LUNA 2 stood out as the highest loser among the Luna assets, with a decline of over 3%. Its Relative Strength Index (RSI) indicated a strong bearish trend below the 40 level.

LUNA/USD price trend

Source: TradingView

Read Ripple’s [XRP] Price Prediction 2023-24

Shifting the focus to Ripple’s XRP, its price trend revealed slight declines over the past five days. As of this writing, XRP was trading at $0.69 with a close to 1% loss.

Despite this loss, the RSI suggested that it was still in a bull trend. However, the Moving Average Convergence Divergence (MACD) showed a bearish sentiment.


Adewale is a full-time journalist at AMBCrypto. While he is increasingly fascinating by the world of blockchain and cryptocurrencies, Adewale holds a degree in International Relations. Besides working on insightful articles that touch upon the crypto-space's hottest issues, he finds joy in supporting Manchester United and Afrobeat music.
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