Terraform Labs, in conjunction with their co-founder Do Kwon, have submitted a legal request seeking the dismissal of charges brought against them by the U.S. Securities and Exchange Commission (SEC). The dispute revolves around allegations of securities fraud amounting to several billion dollars. Their objective is to avert a lengthy legal process, should the decision be made in their favor.
Reasons for Dismissal
According to the proposal by Terraform Labs and Do Kwon, there is an insufficiency of evidence to support the SEC’s allegations. They have stated that “after two years of investigation, completion of the discovery process, which resulted in taking more than 20 depositions, and exchanging over two million pages of documents and data, the SEC is evidently no closer to proving that the defendants did anything wrong.”
Swift Resolution of the Case
Terraform Labs directed their request for a summary judgment straight to Jed Rakoff, a judge at the U.S. District Court for the Southern District of New York, hoping for a swift resolution of the case. However, Terraform’s previous attempt to dismiss the lawsuit was unsuccessful when Rakoff sided with the SEC’s argument that there might exist a “plausible claim” regarding a potential violation of securities laws by Terraform. Rakoff also refused to use a recent judgment as a precedent, which determined that Ripple Labs did not violate any securities laws.
Consequences and Further Developments
Following a loss of $40 billion in 2022, Terraform Labs has been propelled to the forefront among cryptocurrency firms now facing significant troubles and scrutiny from the SEC due to profound concerns regarding the entire industry. After the collapse of their cryptocurrencies TerraUSD (UST) and LUNA, the SEC accused Terraform Labs and Do Kwon, alleging that both the Anchor protocol and LUNA token are “cryptocurrency securities,” implying that Terraform was selling unregistered securities and securities-based swaps, thereby violating relevant regulations.
Kwon is currently being held in Montenegro, while both the USA and South Korea have requested his extradition. Kwon's lawyers are urgently appealing to the court to dismiss these extradition requests to the USA. Meanwhile, Daniel Shin, co-founder of Terraform Labs, is facing his own fraud charges in South Korea.
The SEC has declined to comment on the summary judgment proposal from Terraform Labs.
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