Terraform Labs has filed a request to dismiss a class action lawsuit, arguing that United States securities laws do not apply to its foreign-developed protocols. The investor suit, brought by Nick Patterson, accuses the firm of selling unregistered securities and misleading investors.
On May 3, the company’s attorneys, Dentons, asked a California federal judge to dismiss the case, stating that federal securities laws are not applicable because the protocols were developed and used outside the United States.
Ecosystem collapse and legal battles
The Terra/Luna ecosystem experienced a collapse in May 2022, resulting in billions of dollars being wiped from the crypto markets. The event has led to numerous lawsuits against Terraform Labs, its founder Do Kwon, and associated entities such as the Luna Foundation Guard. This specific class action was filed in June 2022, alleging that Terra tokens (UST and LUNA) were securities, among other claims.
According to Law360, Terraform Labs’ dismissal motion states that federal securities laws and mail and wire fraud accusations in the suit only apply domestically.
The firm argues that the plaintiff, Nick Patterson, did not adequately plead that mail and wire fraud allegations occurred domestically.
Additionally, the motion contends that the plaintiff failed to identify the location of digital wallets containing his Terra tokens, which negates any “domestic injury” claims.
In February, the Securities and Exchange Commission sued Terraform Labs and Do Kwon, accused of orchestrating a multibillion-dollar securities fraud.
In April, a South Korean court ruled that LUNA was not a security under the country’s Capital Markets Act. Terraform Labs co-founder Hyun-seong Shin and nine individuals associated with the firm were indicted in South Korea on April 25, facing charges of fraud, breach of trust, and embezzlement after almost a year of investigation.
