The SEC’s legal case against Terraform Labs has officially started without the presence of former CEO Do Kwon, following delays stemming from Kwon’s arrest in Montenegro and extradition proceedings.
SEC’s Allegations
The civil fraud trial involving Terraform Labs’ founder Do Kwon reportedly began on Monday in a Manhattan court, where the SEC waged a full-blown war against the bankrupt crypto company and its former CEO. According to the X posts by media journalist Zack Guzman, the regulatory agency has claimed that the case is not one of basic trial and error in technology but of fraud.
The SEC accused Kwon and the Singapore-based blockchain company of misleading investors in 2021 about the stability of TerraUSD and falsely claiming Terraform’s blockchain was used in a popular Korean mobile payment app. However, Industry experts believe that the SEC’s main motive behind the legal battle is just to make Terraform Labs pay compensation.
Arguments from Both Sides
Devon Staren, an SEC lawyer, labeled Terra a scam, alleging that it caused massive losses for investors, estimated at over $40 billion. He also called the project a “house of cards” because of how rapidly the Terra ecosystem collapsed.
On the other hand, Louis Pellegrino, representing Terraform, countered that the SEC has viewed the evidence selectively and is picking and choosing testimony from whistleblowers that suits its case. Furthermore, Kwon’s lawyer, David Patton, defended the former CEO, saying that the latter never claimed that TerraUSD was entirely risk-free.
Do Kwon’s Absence and Legal Complications
The beginning of the trial saw Do Kwon conspicuously absent, his recent release from arrest in Montenegro pending extradition adding to the trial’s complexity. The Terra-SEC legal saga traces back to 2022 when Terraform Labs’ crash led to Kwon’s arrest in Montenegro for fraud. Subsequent delays in extradition, despite court-granted postponements, left Kwon unavailable for the trial scheduled from January to late March, leaving his role in the proceedings uncertain.
Previous Court Rulings
In December 2023, Judge Jed Rakoff issued a mixed ruling, affirming the SEC’s contention that Terraform Labs engaged in transactions involving unregistered securities. Nonetheless, the court also supported Kwon and the platform regarding the offering and sale of security-based swaps, shedding light on the intricate legal landscape surrounding crypto activities.
However, depending on Judge Rakoff’s other trial commitments, the announcement of the next trial date could be delayed.
Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.
