In the ongoing legal battle between Terraform Labs co-founder Do Kwon and the United States Securities and Exchange Commission (SEC), Do Kwon asked the Judge to toss the SEC’s lawsuit. Kwon and Terraform are now urging a U.S. district judge to dismiss the securities and fraud lawsuit against them. Their request is based on the claim that the SEC has failed to provide sufficient evidence to support its allegations.
The legal filing, submitted to a New York District Court on October 27, emphasizes that the cryptocurrencies associated with Terraform, including Terra Luna Classic (LUNC), TerraClassicUSD (USTC), Mirror Protocol (MIR), and Mirrored Assets (mAssets), are not securities, contrary to the SEC’s claims. The lawyers representing Kwon and Terraform assert that the SEC’s investigation, which spanned two years, a discovery phase involving over 20 depositions, and the exchange of more than two million pages of documents and data, has not yielded evidence to substantiate the SEC’s allegations.
Challenging the SEC’s Claims
Do Kwon asked Judge to toss SEC’s lawsuit because the lawsuit is based on claims that lack evidentiary support. It was contended that the regulator knew certain allegations were false. The SEC lawsuit also accused the defendants of perpetrating fraud by repeating false and misleading statements, a claim that Kwon’s legal team states is inaccurate, especially considering that Terraform Labs had no customers and, therefore, no customer funds.
The legal team stated, “After two years of investigation, the completion of a discovery period that resulted in the taking of more than 20 depositions, and the exchange of over two million pages of documents and data, the SEC is evidentiarily no closer to proving that the Defendants did anything wrong.” They further emphasized that there is a lack of evidence to support many of the SEC’s claims and accused the regulator of being aware that some of their allegations were false.
The SEC’s lawsuit, filed in February, further alleged that Kwon and Terraform sent 10,000 Bitcoin (BTC) to a Swiss financial institution and withdrew $100 million. However, Kwon’s defence asserts that this allegation is based on falsehoods, and they emphasized the absence of customer funds due to Terra’s collapse in May 2022, after the USTC algorithmic stablecoin lost its U.S. dollar peg.
Apart from the fact that Do Kwon asked Judge to toss SEC’s lawsuit, Kwon and Terraform also sought to exclude the opinion of the SEC’s experts, including a report from Rutgers University economics professor Bruce Mizrach, which they described as “junk science.”
What is SEC Claiming?
The Securities and Exchange Commission (SEC) lawsuit, initiated in February, made several significant claims against Do Kwon and Terraform. The SEC alleged that they sent 10,000 Bitcoin (BTC) to a Swiss financial institution and subsequently withdrew $100 million. Moreover, they were accused of engaging in fraudulent activities by disseminating false and misleading statements.
Legal Battles and Kwon’s Detention
Terraform Labs’ legal battle against the Securities and Exchange Commission (SEC) has entered a new phase with the detention of Do Kwon in Montenegro. Kwon, the co-founder of Terraform, finds himself in a challenging position as he faces extradition to the United States. The legal proceedings have become even more complex as Kwon has formally requested the court to reject the SEC’s motion for extradition and an interview within the United States.
This detention and extradition request further highlight the contentious nature of the case, which revolves around allegations from the SEC that Terraform Labs and Kwon were involved in fraud and misleading statements. While Terraform’s initial attempt to have the lawsuit dismissed was denied by Judge Jed Rakoff, these recent developments suggest that the legal battle between Terraform and the SEC is far from resolving, and Kwon’s extradition request may introduce additional legal complexities.
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