The United States Securities and Exchange Commission (SEC) is facing scrutiny for its recent lawsuit against Terraform Labs and its founder, Do Kwon. Court documents suggest that the regulatory body is treating Terra and Kwon with significantly less severity than Ripple, raising questions about the SEC’s inconsistent approach to regulating the cryptocurrency industry.

SEC To Pursue Legal Action

While the SEC seeks to punish only the defendants in the Terra case, it plans to pursue legal action against Ripple and anyone associated with the company, including employees, agents, and lawyers. Ripple has fiercely defended its position that XRP is not a security, and the SEC’s actions are a response to this stance.

Ripple recently achieved a minor victory when the SEC admitted that XRP is a software code and not a security. The company argues that it should be held to the same standards as Ethereum, which the former SEC chief deemed not to be a security in 2018.

The case has far-reaching implications for the future of cryptocurrencies in the US and is a legal test of the SEC’s system of “regulation by enforcement” for the industry. Ripple’s CEO, Brad Garlinghouse, emphasized this point during a speech at the WEF 2023 summit.

Multi-Billion Dollar Fraud

In contrast, the SEC’s lawsuit against Terraform Labs and Kwon alleges that they conducted a multi-billion dollar crypto asset securities fraud. The complaint asserts that the company sold an “inter-connected suite of crypto asset securities” through unregistered transactions and misled investors about the stability of Terra’s stablecoin.

The complaint also claims that Terraform and Kwon marketed their Anchor Protocol, which promised to pay out 20% interest on USTC deposits, without disclosing the risks involved. The SEC’s actions form part of a broader attempt to regulate the rapidly growing and evolving cryptocurrency industry.

As the industry continues to develop, it is inevitable that regulators will play an increasingly significant role in shaping its future. The question remains whether they will do so in a consistent and constructive manner or through enforcement that could stifle innovation.