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Terraform Labs Co-Founder Seeks Dismissal of SEC Lawsuit

Terraform Labs' Do Kwon refutes SEC's lawsuit, asserting absence of proof for alleged misconduct.

Tue, 31 Oct 2023, 23:56 pm UTC

Terraform Labs co-founder, Do Kwon, has recently appealed to a United States district judge to dismiss a lawsuit filed against him and his company by the U.S. Securities and Exchange Commission (SEC). Kwon maintains that the SEC has failed to demonstrate any wrongdoing on their part.

The official document, filed on October 27 in the U.S. District Court for the Southern District of New York, saw Kwon's legal representatives arguing against the SEC's allegations. According to the SEC, Terraform's cryptocurrencies such as TerraClassicUSD (USTC), Terra Classic (LUNC), Mirror Protocol (MIR), and its mirrored assets (mAssets) are classified as securities. However, Kwon and his team hold a different perspective.

Kwon's legal team stated that despite a two-year-long investigation and having exchanged over two million pages of evidence, the SEC remains unable to substantiate any misconduct by the defendants. The legal representatives pointed out the lack of evidence supporting many of the SEC's claims, even suggesting that the regulator was aware that some of its allegations might be inaccurate.

One specific contention from the SEC claimed that Kwon and Terraform had covertly transferred substantial amounts to Swiss bank accounts for personal benefits. The SEC alleged that Kwon and his firm dispatched 10,000 Bitcoin to a Swiss entity and withdrew an amount of $100 million. The SEC further accused them of fraud, citing recurrent deceptive statements.

However, refuting these claims, Kwon's legal counsel indicated that the SEC was aware of the inaccuracies in such allegations at the time of filing the lawsuit. They also emphasized that Terraform Labs had no client base and, therefore, did not manage customer funds.

Additionally, the significant Terra ecosystem, valued at $40 billion, faced a downturn in May 2022 when its TerraUSD (UST) algorithmic stablecoin could no longer maintain parity with the U.S. dollar.

Kwon's legal team also sought to disqualify the inputs of the SEC's specialists, particularly a report from Rutgers University's Professor Bruce Mizrach, which they labeled as non-factual.

The presiding Judge, Jed Rakoff, had previously rejected Terraform's initial request to dismiss the suit. Kwon, currently held in Montenegro, has also contested the SEC's request to have him extradited and interviewed on U.S. soil.

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