The United States Securities and Exchange Commission (SEC) has taken a firm stance in the Terraform Labs case, refuting the jury’s conclusion and demanding a summary judgment on all the claims. The SEC’s response highlights its discontent with the leniency shown towards Do Kwon, one of the co-founders of Terraform Labs, in regard to his involvement with the fraudulent activities that led to the collapse of the Terra ecosystem.
In a court filing dated October 27, the SEC expressed its disagreement with the jury’s verdict in the U.S. District Court for the Southern District of New York. The commission stated that no rational jury could conclude that Kwon was not liable for Terraform’s violations of Exchange Act Section 10(b) and Rule 10b-5 thereunder pursuant to Exchange Act Section 20(a). The SEC supports its claim by providing evidence that points to Kwon’s role in misleading crypto investors through the creation and promotion of Terra and its in-house Terra (LUNA) tokens as securities.
On the same day as the SEC’s court filing, Do Kwon and Terraform Labs filed a motion asking the judge to dismiss the SEC’s lawsuit against them. They argue that Terra Classic (LUNC), TerraClassicUSD (USTC), Mirror Protocol (MIR), and its mirrored assets (mAssets) are not securities, contrary to the allegations made by the SEC. However, the SEC remains steadfast in its position, asserting that Kwon and Terraform Labs both sold securities and engaged in unregistered transactions involving LUNA and MIR, as well as committed fraud.
While Terra co-founder Daniel Shin’s lawyer sought to divert blame for the Terra ecosystem collapse onto external factors such as the “unreasonable operation of the Anchor Protocol and external attacks carried out by Do-hyung Kwon,” the company has more recently accused market maker Citadel Securities of playing a role in intentionally causing the depeg of its TerraUSD (UST) stablecoin in 2022. Terra’s allegations of a “concerted, intentional effort” on the part of Citadel Securities highlight the complex web of accusations in this ongoing legal battle.
The SEC’s decision to challenge the jury’s conclusion and seek a summary judgment demonstrates its commitment to holding Terraform Labs accountable for their alleged violations. By refuting the leniency shown towards Do Kwon, the commission aims to ensure that the full extent of the alleged fraudulent activities is addressed in a manner that upholds the law and protects investors. As the case unfolds, the SEC’s pursuit of justice in this matter will undoubtedly continue to make headlines in the crypto world.