According to a recent court filing from the Southern District of New York, a U.S. district judge has ordered the cryptocurrency startup Terraform Labs to comply with Securities and Exchange Commission (SEC) subpoenas. The US regulator issued a subpoena enforcement action against Terraform Labs and its CEO, Do Kwon, during the second week of November 2021.
A US regulator persuades a New York judge to accept a plea in support of investigative subpoenas.
A court order signed by United States District Judge J. Paul Oetken on February 17, 2022, specifies that the startup Terraform Labs must comply with the SEC’s investigative subpoenas. The SEC issued subpoenas in mid-November of last year, attempting to compel Terraform Labs and its CEO Do Kwon to cooperate with the “fact-finding investigation.”
The investigation stems from Terraform Lab’s Mirror Protocol, a 2020 application that allows users to trade mirrored assets tied to the price of US securities. The SEC is requesting that Terraform Labs and Kwon explain why the court “should not compel them to produce documents as required by the subpoenas and compel Kwon to appear for testimony.”
Terraform Labs and Kwon announced in October, a month before the SEC’s enforcement action, that they were suing the US regulator for serving the subpoena on the CEO at a conference in New York. Terraform Labs (TFL) and Kwon insisted that the SEC has no jurisdiction over their companies and that the subpoenas were not served properly. According to the lawsuit filed against the SEC, “the SEC attorneys were well aware that TFL and Mr. Kwon had consistently maintained that the SEC lacked jurisdiction over TFL and Mr. Kwon, and at no time did the SEC lawyers ask Dentons lawyers whether it was authorized to accept service of subpoenas.”
‘Terraform and Kwon Are Hereby Ordered to Comply With the Referenced Subpoenas,’ says a New York judge.
Despite the SEC lawsuit, judge J. Paul Oetken of the Southern District of New York ordered TFL and Kwon to comply with the regulator’s subpoenas last Thursday. Oetken granted the SEC’s wishes after reviewing all of the filings between the parties and listening to an oral argument via telephone conference.
“For the reasons stated on the record at the February 17, 2022 conference,” Oetken’s order states, “the SEC’s application is granted, and Terraform and Kwon are hereby ordered to comply with the above-referenced subpoenas.” This order is stayed for 14 days to allow for further briefing on a potential stay pending any appeal of this order, according to the court filing.
Mirror Protocol is still operational today and is the Terra blockchain’s fifth-largest decentralized finance (defi) protocol. At the time of writing, the synthetics protocol for on-chain price exposure to real-world assets had a total value of $587.34 million locked in (TVL). The SEC charges TFL and Kwon with “creating, promoting, and offering to sell assets and MIR tokens to U.S. investors.”
Disclaimer: These are the writer’s opinions and should not be considered investment advice. Readers should do their own research.
