US Second Circuit Orders Terraform Labs To Cooperate With Subpoenas

As part of an SEC investigation into Terraform Labs, the Second Circuit on Wednesday ordered Terraform Labs and CEO Do Kwon to cooperate with subpoenaed documents.

The SEC, Terraform, and Kwon did not immediately comment on the Second Circuit’s ruling. Notably, the Second Circuit panel is comprised of judges Rosemary S. Pooler, Richard C. Wesley, and Myrna Pérez.

Whether or not Terraform and Kwon were engaged in marketing unregistered securities using the Mirror Protocol, which allows users to exchange crypto tokens that mirror big equities like Apple and Amazon, is being investigated by the SEC.

Documents from the regulator were presented to Kwon at Messari’s 2021 Mainnet crypto conference in New York in September of that year. Kwon and Terraform appealed, arguing that the SEC violated its own procedures once it served Kwon in person and that the court lacked jurisdiction since Terraform had no presence in the United States at the time of the proceedings.

There is no jurisdiction for the SEC to regulate Kwon and his decentralized finance firm since he is a South Korean national who resides in Singapore — where the company is established. According to the judges, Terraform has creditors and investors in the United States.

It was also claimed the SEC violated procedures by serving Kwon without consulting his attorney and by hand-serving him. Furthermore, the judges ruled that Kwon had admitted that his attorney was not permitted to be served and that Kwon never supplied an address to the court.

Both arguments were rejected by the court. Kwon had to be served in person because Kwon was not permitted to receive filings from Terraform’s lawyers. This would lead to outrageous consequences by permitting a party to demand service via counsel yet enable the party to deny service by not approving their lawyers to receive any files, according to Terraform’s interpretation of the regulations.

Terra blockchain’s stunning collapse last month, which saw its native coin luna experience a death spiral as its supply increased dramatically, has nothing to do with this legal action.