Terraform Labs, facing a lawsuit by the US Securities and Exchange Commission (SEC) over fraud charges, is seeking permission from a judge to subpoena data from bankrupt cryptocurrency exchange FTX. The data is believed to be crucial in supporting Terraform's defense a gaint the SEC's allegations. The motion filed by Terraform's attorneys on July 19 seeks information on FTX's digital wallets used by short sellers during the period between March 2022 and May 2022. Terraform claims that the failure of its stablecoin was a coordinated attack by short sellers, potentially involving FTX's sister company Alameda Research.
The SEC filed a lawsuit against Terraform Labs and its founder, Do Kwon, on February 16, accusing them of orchestrating a multibillion-dollar cryptoasset securities fraud. The regulator charges that Terraform offered unregistered securities through its failed algorithmic stablecoin TerraUSD (UST) and Terra Luna (LUNA) tokens. The collapse of Terraform in 2022 resulted in losses of over $40 billion in the cryptocurrency market. The motion also seeks information about the wallet used by Jump Trading, which the SEC accuses of colluding with Terraform to manipulate the price of the UST stablecoin. Jump Trading has been sued in Illinois on similar grounds for allegedly purchasing millions of UST tokens in 2021 to restore the stablecoin's peg to $1.
The court filing reveals that defenders misrepresented UST's recovery by claiming that the algorithm restored and maintained the price peg. The SEC contends that the recovery was actually facilitated through an agreement with Jump Trading, which purchased large quantities of U.S. ST to support prices. Additionally, Terraform is seeking the dismissal of a parallel class action in California, arguing that US securities laws cited in the case do not apply to its foreign-developed agreement, as the company is headquartered in Singapore.
