- SEC attorney calls TerraForm Labs blockchain a ‘House Of Cards.’
- The initial court testimonies review UST price manipulation claims.
- Do Kwon’s extradition was delayed upon Montenegro’s court ruling.
The first day of the much-anticipated trial between the U.S. Securities and Exchange Commission (SEC) and Do Kwon and TerraForm Labs has begun. On March 25, 2024, the US District Court for the Southern District of New York scrupulously reviewed the claims that Kwon orchestrated a fraudulent third-party purchase during the 2021 TerraUSD (UST) depeg.
May 29, 2021, went down in history as one of the most difficult days for the crypto community when UST gradually dropped to below 3 cents from its original $1 peg. The SEC accuses Kwon and fellow TerraForm Labs executives of artificially inflating Terra Ecosystem’s trading volume and propping up UST’s market value. The SEC originally charged Terra with customer defrauding in February 2023.
SEC Takes First Jab at Do Kwon in ‘House Of Cards’ Trial
During the inaugural hearing, the SEC opened by stating, “This is a case about fraud. This trial is not about the technology.” To that, Do Kwon’s defense explained the smart contract error that led to the $40 billion crypto wipeout in May 2021.
The SEC’s attorney, Devon Staren, implied that Terra’s Ecosystem was a “House Of Cards,” describing it as a ticking bomb destined to implode. For evidence, the SEC used Slack chat logs between Kwon and Daniel Shin, among other Terra co-founders.
However, Judge Jed Rakoff rebuked the SEC’s claims that TerraForm Labs partaken in “illegally offering security-based swaps through a feature that let users create digital assets that mirrored the price of another asset.”
This checks out with the summary judgment by Judge Rakoff published in December 2023, where he sided with Kwon’s defense on the security-based swaps but granted the SEC a partial win due to preliminary proof that TerraForm Labs sold crypto assets as unregistered securities.
Manhattan Court Leaves SEC & Terra Shy of Final Verdict
As the House Of Cards unfolds without Do Kwon attending the hearing due to his extended stay in Montenegro, Judge Rakoff has withdrawn from giving a final verdict. Instead, a two-week deadline has been given for a decision. In the lawsuit, the SEC is seeking Terra’s civil financial penalties and barring Kwon and Terraform Labs from the securities industry.
Following the legal scrutiny in Manhattan, the current TerraForm Labs CEO, Chris Amani, chimed in to advise his followers to keep a sharp eye on the facts that unfold in the court. “There have been a lot of allegations, and this is our chance to finally tell our side of the story,” asserted Amani, highlighting the next two weeks as a make-or-break moment for TerraForm Labs’ future.
On the Flipside
- Do Kwon’s general attorney, David Patton, remarked that “Failure doesn’t equal fraud,” and Terra’s LUNA and UST tokens were not intended as risk-free investments.
Why This Matters
The ruling of this high-profile case can shape blockchain regulation and gain closure for the investors severely affected by the Terra Luna fiasco in May 2021.
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