Terraform Labs Fights Back Against Class Action Lawsuit Challenging U.S. Laws

Terraform Labs, the company behind the Terra/Luna ecosystem, is seeking to dismiss a class action lawsuit filed by an investor, Nick Patterson, citing the inapplicability of United States securities laws to its foreign-developed protocols.

The investor suit claimed that the company sold unregistered securities and misled investors. Terraform’s attorneys argued that federal securities laws do not apply to the protocols, which were developed and used outside of the United States.

The lawsuit was filed in June 2022, after the Terra/Luna ecosystem collapsed in May 2022, causing billions in losses to the crypto markets and sparking a raft of lawsuits against the firm, its associated entities, and founder Do Kwon.

In its motion to dismiss the lawsuit, Terraform argued that the Second Amended Complaint (SAC) failed to allege that any of the protocols at issue were developed domestically.

It also argued that the mail and wire fraud allegations in the suit only apply domestically, and the plaintiff did not adequately plead that such allegations occurred domestically.

Terraform also claimed that the plaintiff failed to identify the location of digital wallets containing his Terra tokens, which negates any “domestic injury” claims.

The dismissal motion also applies to the RICO allegations in the lawsuit, which claimed that the firm’s goal was to reap profits at retail investors’ expense.

Terraform and Do Kwon were sued by the Securities and Exchange Commission in February for allegedly 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. On April 25, Terraform Labs co-founder Hyun-seong Shin and nine individuals associated with the firm were indicted in South Korea.