The U.S. Securities and Exchange Commission (SEC) is not accepting the jury's findings concerning alleged violations by Terraform Labs and is now seeking summary judgment on all claims. An October 27 court filing disclosed the SEC's unwillingness to agree with the jury's leniency toward Do Kwon, who played a role in facilitating the fraud that led to the Terra ecosystem's collapse. The documents submitted in the U.S. District Court for the Southern District of New York argue that Kwon should be held liable for Terraform's violations of the Exchange Act and Rule 10b-5 under Section 20(a) of the Exchange Act.
The SEC has provided "evidence" indicating Kwon's involvement in misleading cryptocurrency investors through the creation and promotion of Terra and its internal Terra Tokens as securities. On the same day, Kwon and Terraform Labs requested that the SEC's lawsuit be dismissed, asserting that Terra Classic (LUNC), TerraClassicUSD (USTC), Mirror Protocol (MIR), and their mirror assets (mAssets) are not securities, contrary to the SEC's claims. However, the SEC maintains that Kwon and Terraform Labs sold securities, conducted unregistered transactions for LUNA and MIR, engaged in mAsset transactions, and committed fraud.
While lawyers for Terra co-founder Daniel Shin have attributed the Terra ecosystem's collapse to "irrational operations by Anchor Protocol and external attacks by Do-hyung Kwon," the company recently accused market maker Citadel Securities of "concerted actions" leading to the de-pegging of its TerraUSD (UST) stablecoin in 2022. Citadel Securities dismissed these allegations as a "frivolous motion" based on false social media posts and countered that it had no role in the matter.
The dispute between the SEC, Terraform Labs, and its key figures underscores the ongoing legal battles and regulatory challenges faced by the cryptocurrency industry. It demonstrates the importance of defining digital assets and their regulatory status within the rapidly evolving financial landscape.
