A federal judge in Manhattan decided on Monday, July 31, 2023, that Terraform Labs and its creator Do Kwon must answer to fraud allegations brought by the U.S. Securities and Exchange Commission (SEC).

Two cryptocurrencies whose rise shook the cryptocurrency markets throughout the world last year were created by Kwon and Terraform Labs.

According to a report from Channel News Asia on Thursday, 3/8/2023, US District Judge Jed Rakoff denied their request to have their charges of deceiving investors and selling unregistered securities worth billions of dollars dismissed.

Another associated token called Luna provides TerraUSD, an algorithmic stablecoin that is meant to maintain a 1:1 peg to the US dollar, with its value.

When TerraUSD, also known as UST, fell below the dollar peg 1:1 in May 2022, both tokens saw almost all of their value disappear. TerraUSD, the tenth largest cryptocurrency prior to their demise, had a market capitalization of almost USD 18.5 billion, which is equivalent to IDR 279 trillion (assuming an exchange rate of IDR 15,098 per US dollar).

The SEC lawsuit alleges that Terraform Labs and Do Kwon deceived investors regarding the stability of UST and the value of the company’s cryptocurrency tokens. Rakoff wrote in the decision that regulators can investigate the accusations.

Rakoff also objected to the stance taken by other judges in the current Ripple Labs case. Due in part to the fact that buyers were unsure as to whether their money would be going to Ripple directly or to a third party, US District Judge Analisa Torres determined that Ripple’s sale of XRP on a public cryptocurrency exchange was not an offer of securities.

In the Terraform Labs case, SEC attorneys said that Torres’ decision was incorrect and that SEC employees were looking to review it.