Terraform Labs and co-founder Do Kwon have filed a petition with the federal court, requesting the judge to dismiss the securities fraud charges submitted by the SEC.
Kwon, who co-founded Terraform Labs in 2018, is among the young programmers who view blockchain technology as the gateway to a future financial revolution. The project created a stable digital currency and attracted numerous investors. However, in May 2022, TerraUSD collapsed as two tokens from Terraform Labs, Luna, and stablecoin UST, plummeted, losing nearly all their value. This event caused over $60 billion in damages to investors and led to lawsuits in several countries, including South Korea and the United States.
In the submission to the court on October 27, Terraform Labs and co-founder Do Kwon asserted that the SEC’s accusations of a conspiracy to defraud billions using cryptocurrency and securities assets were baseless. Cryptocurrencies such as Terra Luna Classic (LUNC), TerraClassicUSD (USTC), Mirror Protocol (MIR), and Mirrored Assets (mAssets) are not securities, as alleged by the SEC.
The defense lawyers for Terraform Labs emphasized, “After two years of investigation, the completion of a discovery period that resulted in the taking of more than 20 depositions, and the exchange of over two million pages of documents and data, the SEC is evidentiarily no closer to proving that the Defendants did anything wrong”
They added the “evidence does not exist to support many of the SEC’s claims” and asserted the regulator “knew some of its allegations were false” — in particular, an allegation that Kwon and Terraform secretly moved millions into Swiss bank accounts for their own gain.
Furthermore, Terraform Labs’ legal team also stated that the regulatory body relied on an analysis conducted by an economics professor at Rutgers University, which lacked conceptual and methodological rigor, as the basis for the Terraform Labs lawsuit.
Judge Jed Rakoff, who oversees the case, denied Terraform’s earlier attempt to toss the lawsuit.
Terra and Do Kwon, once holding a top position in the cryptocurrency industry, faced a painful downfall in May 2022. The scandal paralyzed the entire crypto sector for a considerable period afterward.
Earlier this year, the U.S. Securities and Exchange Commission (SEC) filed charges accusing Terraform Labs and co-founder Do Kwon of fraud, selling unregistered securities, and other complaints. Do Kwon is currently in prison in Montenegro for using a fake passport to leave the country.