Feb 18, 2023

SEC Accused of Wildly Charging Terraform Labs and Do Kwon

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The US Securities and Exchange Commission (SEC) has recently targeted Terraform Labs and its founder, Do Kwon, for allegedly selling a “suite of crypto asset securities.” This news has sparked a variety of reactions from lawyers within the crypto community.

Web3 lawyer Mike Selig posted his thoughts on the matter to Twitter. He noted that the SEC classified the algorithmic stablecoin TerraUSD Classic (USTC) as a security due to its potential to be exchanged for Terra (LUNA), now known as Luna Classic (LUNC). Selig argued that, under this theory, “nearly anything can be a security.”

Mike Wawszczak, the general counsel for Alliance DAO, added his two cents as well. He believes that SEC Chairperson Gary Gensler may be seeking “complete discretion” in applying securities laws to any transactions, citing Gensler’s request for $2.2 billion in FY 2023. Justin Browder, a partner at the law firm Willkie Farr & Gallagher, likened the SEC’s description of USTC’s use to generate returns on another protocol to “depositing fiat in a bank” and described the SEC’s actions as “wild.”

Apart from the lawyers, other members of the crypto community also shared their views. Dylan Daniel argued that if everything becomes a security, the SEC will have to expand and scale itself. He hopes that Gensler has a solid plan.

The same sentiments were echoed on Feb. 13, when the SEC decided to go after Paxos, claiming that the Binance USD (BUSD) stablecoin is a security. Many members of the community were confused and argued that users of the stablecoin do not purchase it and expect its price to go up.

The SEC’s decision to target Terraform Labs and its founder for selling crypto assets has sparked much debate within the crypto community. Lawyers, such as Mike Selig, Mike Wawszczak, and Justin Browder, have questioned the SEC’s characterization of USTC as a security, as well as its approach to regulating assets like BUSD. Meanwhile, other members of the crypto community, such as Dylan Daniel, have argued that if the SEC continues to classify everything as a security, it may need to scale itself up. As such, it remains to be seen how the SEC will proceed with its enforcement against Terraform Labs and Do Kwon.

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