Terraform Labs co-founder defends himself against SEC charges

Do Kwon, co-founder of the blockchain company Terraform Labs, has defended himself against allegations of fraud brought by the US Securities and Exchange Commission (SEC). Kwon’s lawyers asked for the lawsuit to be dismissed, arguing that the SEC’s claims were without merit and that US law prohibited regulators from asserting jurisdiction over the digital assets in question.

According to a Bloomberg report, Kwon’s lawyers stated that “US law prohibits the SEC from using federal securities law to assert jurisdiction over the digital assets in this case.” They also argued that the SEC failed to prove that Kwon had defrauded US investors in connection with the collapse of Terra’s stablecoin, UST.

Kwon’s legal troubles began in March 2022 when he was arrested at Podgorica Airport in Montenegro while allegedly attempting to fly to Dubai using false documents. Following his arrest, both South Korean and US authorities requested Kwon’s extradition. For now, it is still unclear which country, if any, will have the extradition request granted.

Montenegrin Minister of Justice Marko Kovač recently commented on the case, stating that “the decision to which state they will be extradited is based on several factors such as the seriousness of the committed criminal act, the place and time when the criminal act was committed, the order in which we received the request for extradition and several other factors.”

In addition to defending against the SEC’s allegations, Kwon’s lawyers also argued that the UST stablecoin is a currency, not a security. This requirement is significant, as US securities law only applies to securities, not currencies.

The collapse of Terra’s UST stablecoin has been a controversial point for some time. The stablecoin was designed to maintain a stable value of $1, but its value fell to $0.85 at the end of 2021. The collapse reportedly cost investors $40 billion.

While Kwon is fighting the SEC’s allegations, another co-founder of Terraform Labs, Shin Hyun-Seong, has managed to avoid legal trouble. Seoul’s Southern District Court recently rejected an arrest warrant for Shin, citing the unverified nature of the allegations and the unlikelihood of Shin being a flight risk or destroying evidence.

In conclusion, the trial against Do Kwon and Terraform Labs is ongoing, and it remains to be seen how the case will be resolved. However, Kwon’s lawyers’ defense against the SEC’s allegations suggests there could be significant legal challenges ahead for the regulatory agency.