Terraform Labs Engages in Multi-Billion Dollar Crypto Trial with SEC, Unveiling Legal Battle
The Securities and Exchange Commission (SEC) has launched a full-scale attack against Terra and its former founder, Do Kwon. In a bid to defend the right to freedom of speech, the SEC emphasizes that this is not a matter of trial and error in technology, but rather a case of fraud. However, defense lawyers argue that it is simply a failure. Let’s delve into the details.
Could this be the start of a multi-billion dollar crypto trial? According to a report by Bloomberg, the SEC lawyers have leveled fraud accusations against Terraform Labs and Do Kwon in his absence. During a civil trial held in the Southern District of New York, Devon Staren, a lawyer for the SEC, described Terra as a scam, likening it to a house of cards that ultimately collapsed, causing investors to suffer significant losses. The SEC estimates that by May 2022, Terra’s value had plummeted, leading to the collapse of the entire system and investors losing over $40 billion.
Is it a case of failure or fraud? Devon Staren from the SEC further likened Terraform Labs to a house of cards that collapsed on its investors in 2022, resulting in substantial financial losses for the crypto market. The fall of TerraUSD (UST) triggered a domino effect of losses for numerous companies, underscoring the seriousness of the situation.
On the other hand, Louis Pellegrino, representing Terraform, argues that the SEC’s case is built on selective evidence and testimony from witnesses who are hoping to receive whistleblower rewards if the SEC is successful. In defense of Terra, Kwon’s lawyer, David Patton, clarifies that the crypto entrepreneur never claimed that Terra’s cryptocurrency was entirely risk-free.
However, the trial commenced without the presence of Do Kwon, who was noticeably absent on the first day. Kwon, who was arrested in March 2023 in Montenegro for using counterfeit travel documents, was recently released while awaiting extradition. His role in the trial is yet to be determined, further complicating the legal process.
The SEC lawsuit alleges that Terraform Labs and Kwon misled investors about the stability of their algorithmic stablecoin, TerraUSD (UST), which caused significant instability. In December 2023, Judge Jed Rakoff partially ruled in favor of the SEC, confirming that Terraform Labs engaged in dealing with unregistered securities. However, the court also sided with Kwon and the platform regarding the offering and selling of security-based swaps, highlighting the intricate legal landscape of crypto operations.
What happens next? The judge will announce the date for the next hearing in the Terra case during the day. Due to Judge Rakoff’s involvement in another trial, it may take some time for the new trial date to be announced. However, many believe that the SEC’s clear objective is to secure compensation from Terra and nothing more.
The ongoing Terraform Labs trial, along with other significant cases involving prominent figures like Sam Bankman-Fried and Changpeng Zhao, is expected to shape the legal landscape of the crypto industry in 2024. These proceedings underscore the increasing regulatory scrutiny and legal challenges faced by the cryptocurrency sector.