Yuriko Nakao/Getty Images
- A federal judge said the SEC has plausible reason to see Terraform's crypto as a security.
- This goes against another judge's decision last month that said XRP was not a security in some cases.
- The separate findings complicate the regulatory outlook for the crypto industry.
Where one federal judge gave the crypto industry reason to cheer last month, another brought down the gavel through a contradictory ruling on Monday.
US District Judge Jed Rakoff is allowing the Securities and Exchange Commission to proceed with its legal case against crypto platform Terraform Labs, as well as its founder Do Kwon. The regulator sued the firm in February for selling unregistered securities, and for operating a fraud scheme.
In allowing the case to continue, Rakoff rejected a July 13 decision related to crypto firm Ripple, which similarly was sued for its XRP token. There, District Judge Analisa Torres determined that the coin was not a security when sold in a secondary market.
Last month's finding in the Ripple case was followed by a rally throughout the crypto industry, as investors celebrated some clarity over the nature of digital tokens.
But in his published opinion, Rakoff asserted that the origin of one's crypto purchase has no impact on whether they expect a profit to be made off of it, which would meet the threshold for a security.
"Simply put, secondary-market purchasers had every bit as good a reason to believe that the defendants would take their capital contributions and use it to generate profits on their behalf," he wrote.
This opposing legal view adds new confusion for crypto investors and further uncertainty concerning other SEC lawsuits.
While the regulator is looking to appeal the Ripple decision, Bloomberg reports, it has also taken crypto giants such as Coinbase and Binance to court over the unregistered securities argument.
Under Chairman Gary Gensler, the SEC has been emphasizing an enforcement-heavy approach to the industry, which he has characterized as running rampant with "fraud" and "hucksters." Much of the sentiment follows after last year's FTX collapse, which cost investors billions.