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Manhattan Judge Declares Certain Crypto Assets as Securities, Adding Complexity to Coinbase and Ripple Cases

A Manhattan federal judge has issued an opinion stating that cryptocurrencies should be treated as securities, regardless of their method of sale. This ruling allows the Securities and Exchange Commission (SEC) to proceed with securities charges against Terraform Labs and its founder, Do Kwon. The decision carries significant implications for the regulation and legal aspects of the crypto industry. The ruling has introduced complexities into the SEC’s ongoing litigation with Ripple and crypto exchange Coinbase. The SEC had accused Coinbase of engaging in the unregistered sale of securities, but the exchange vehemently denies listing any crypto assets as securities. In response to the ruling, Coinbase shares experienced a 4.5% drop in Tuesday’s trading. The opinion contradicts a previous ruling from the same district court, which stated that Ripple, another cryptocurrency, may not be considered a security under all circumstances. However, the new ruling does not alter the impact of the earlier decision.

The industry considered the Ripple ruling as a win, as it implied that whether a cryptocurrency is a security depends on the buyer. The SEC has maintained that many cryptocurrencies listed on popular exchanges, such as Binance, Coinbase, and Kraken, should be classified as securities. The case involving Kwon and Terraform Labs centers on allegations of a massive fraud perpetrated on investors through the unregistered sale of various crypto assets, including luna and a stablecoin called terraUSD. Judge Rakoff’s opinion also bolsters arguments from some lawmakers who advocate for crypto legislation to clarify the roles of regulators and courts in overseeing crypto markets. The SEC has pursued legal action against numerous other crypto firms for allegedly conducting unregistered sales of securities, with Coinbase, Gemini, and Genesis among the targets of such investigations.

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