Terraform Labs co-founder Do Kwon and his legal team have filed a request with a United States district judge, urging the judge to dismiss the securities and fraud lawsuit brought against them by the federal securities regulator. Kwon and Terraform are arguing that the Securities and Exchange Commission (SEC) has failed to provide sufficient evidence to prove their wrongdoing.
According to court filings made on October 27 to the New York District Court, Kwon’s lawyers and Terraform’s legal team disputed the SEC’s allegations that the cryptocurrencies offered by Terraform, including Terra Luna Classic (LUNC), TerraClassicUSD (USTC), Mirror Protocol (MIR), and its Mirrored Assets (mAssets), are securities. Terraform maintained that these tokens do not meet the definition of securities.
The lawyers highlighted that after two years of investigation and an extensive discovery period, the SEC has not been able to demonstrate any wrongdoing on the part of the defendants. They assert that the evidence put forth by the SEC does not support many of its claims and even suggests that some of the allegations made by the regulator are false. Notably, the lawyers pointed out that the SEC’s claim that Kwon and Terraform secretly moved millions of dollars into Swiss bank accounts is unfounded.
The pending lawsuit, which the SEC filed against Kwon and Terraform in February, also accuses them of sending 10,000 Bitcoin (BTC) to a Swiss financial institution and withdrawing $100 million. Additionally, the SEC alleges that Kwon and Terraform engaged in fraudulent activities by making false and misleading statements. However, Kwon’s lawyers argue that the allegation regarding the Swiss bank accounts is baseless, particularly since Terraform did not have any customers or customer funds.
It is worth noting that the Terra ecosystem suffered a collapse in May 2022, leading to the loss of its USTC algorithmic stablecoin’s U.S. dollar peg. The collapse of the $40 billion ecosystem has undoubtedly complicated the legal battle between Kwon, Terraform, and the SEC.
Kwon and Terraform have also moved to exclude the opinions of the SEC’s experts, including a report from Rutgers University economics professor Bruce Mizrach. Referring to Mizrach’s report as “junk science,” Kwon’s legal team aims to discredit the credibility of the SEC’s evidence.
Judge Jed Rakoff, who is presiding over the case, previously denied Terraform’s attempt to dismiss the lawsuit. This denial has set the stage for a contentious legal battle between Kwon, Terraform, and the SEC.
Importantly, it should be noted that Kwon is currently detained in Montenegro and has previously requested the court to reject the SEC’s motion to extradite and interview him in the United States.
The outcome of this lawsuit will have significant implications for the cryptocurrency industry, as it will shape the regulatory landscape surrounding digital assets and their classification as securities. As the legal battle continues to unfold, both Kwon and Terraform maintain their innocence and assert that the SEC has failed to provide substantial evidence to support its claims of securities violations and fraud.
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