A federal district judge finds for the SEC in a case that resulted in $45 billion in losses, but ruled that the parties must move to a trial on fraud charges.

A federal district judge ruled in favor of the U.S. Securities and Exchange Commission (SEC) on Thursday that blockchain developer Terraform Labs and its co-founder Do Kwon offered and sold unregistered securities.

Judge Jed Rakoff of the U.S. District Court for the Southern District of New York wrote:

“The Court grants summary judgment to the SEC on Count IV of the Amended Complaint because defendants offered and sold unregistered securities…In particular, defendants offered and sold LUNA and MIR in unregistered transactions.”

But Rakoff also ruled for Terraform and Kwon on charges related to securities swaps, ruling that Terraform’s so-called real-world mirrored Assets, or mAsset, “does not meet the statutory definition of a security-based swap.”

Finally, Rakoff denied both sides’ claims for summary judgment on fraud charges. The SEC had claimed “Terraform and Kwon orchestrated a fraudulent scheme that ultimately led to $45 billion in market loss, including devastating losses for U.S. investors.”

The case will proceed to a trial scheduled for Jan. 29, 2024.

“We strongly disagree with the decision and do not believe that the UST stablecoin or the other tokens at issue are securities,” a spokesperson for Terraform Labs said in a statement emailed to Unchained. “Further, the SEC’s fraud claims are not supported by evidence, and we will continue to vigorously defend against those meritless allegations at trial.”

UPDATE (Dec. 28, 2023, 18:35 p.m. EST): Adds Terraform Labs statement.