The United States Securities and Exchange Commission (SEC) has filed claims of fraud and securities violations against Terraform Labs. Together with the company’s co-founder, Do Kwon, Terraform Labs is vigorously pursuing a dismissal of these charges from a U.S. District Court. The legal representatives for Kwon and Terraform Labs argued in a document that was submitted on October 27 to the United States District Court for the Southern District of New York that the cryptocurrencies Terra Classic (LUNC), TerraClassicUSD (USTC), Mirror Protocol (MIR), and mirrored assets (mAssets) are not securities as asserted by the SEC. The document was filed in response to the SEC’s claim that the cryptocurrencies are securities.
They emphasised that there is a lack of evidence to corroborate many of the SEC’s charges, and this was a major point of emphasis for them. The defence team vigorously refuted a particular claim, which said that Kwon and Terraform Labs had clandestinely moved millions of dollars into bank accounts in Switzerland for the purpose of enriching Kwon personally. The dispute centres on a claim that 10,000 Bitcoin were transferred to an account at a Swiss bank, resulting in the subsequent withdrawal of $100,000 from the financial institution. They emphasised, “The SEC knew this allegation was false when it filed this case,” which gave insight on what was seen as disinformation provided by the SEC.
Constant allegations from the SEC
The action that was brought by the SEC in February posited fraudulent behaviour by Kwon and Terraform Labs. This was a significant setback for the once thriving $40 billion Terra ecosystem, which came to an end in May 2022 when the TerraUSD (UST) stablecoin lost its peg to the United States dollar. The complicated legal situation exacerbated an already large decline for renowned bitcoin companies, with Terraform Labs at the forefront of this trend.
The Securities and Exchange Commission (SEC) said that the catastrophic collapse of TerraUSD (UST) and the Luna cryptocurrency was the consequence of unregistered securities sales that were part of a massive scheme that allegedly defrauded investors out of billions of dollars. This allegation contributes to the continuing legal conflict between crypto businesses and regulatory agencies over the basic principles that govern digital assets.
The Dynamics of the Courtroom
Even after a two-year-long investigation, over 20 depositions, and an exchange of more than two million pages of documents and data, Terraform Labs is adamant that the SEC has not shown sufficient proof to support a trial. This is evidenced by the company’s request for summary judgement, which elucidates the company’s opinion that the SEC has failed to do so. Do Kwon, who is being held in custody in Montenegro at the moment, has pleaded with the court to deny the SEC’s request to extradite him so that he may be questioned in the United States on the catastrophic failure of his company’s tokens.
The attorneys stated that extraditing Kwon for the purpose of obtaining testimony would be “impossible,” while vehemently rejecting any chance that would provide the SEC with a similar advantage. While the legal system is in disarray, Terraform Labs and Kwon continue their ardent defence against the claims made by the SEC. Both parties are working hard to clear their names and recover the reputations that have been severely damaged as a result of the allegations made against them in the cryptocurrency industry.
Image source: Shutterstock