In a high-stakes standoff, the SEC intensifies its struggle with Terra and its former leader Do Kwon. Emphasizing the importance of freedom of expression, the SEC insists that “this is not a case of technology and trial and error, this is a case of fraud.” However, defense attorneys consider these allegations merely errors.
But, let's back up. What is this all about? Let's dive into the drama.
Intense claims at hand
According to a recent report by Bloomberg, SEC lawyers have accused Terraform Labs and Do Kwon of fraud, despite Kwon's absence. Devon Starren, who represents the SEC, made damning allegations during a civil trial in the Southern District of New York. Starin described Terra as a scam, a fragile structure that collapsed, resulting in huge losses for investors.
The SEC's assessment notes that by May 2022, Terra's value had declined, leading to a catastrophic collapse and losses exceeding $40 billion.
Read more: Do Kwon released from prison in Montenegro, faces home detention and extradition battle
Was this all just a mistake?
Starin also likened Terraform Labs to a “house of cards,” whose collapse in 2022 sent shockwaves throughout the cryptocurrency market, causing significant financial damage. The fall of TerraUSD (UST) led to a chain reaction of losses for many entities, highlighting the seriousness of the situation.
Legal moves
Louis Pellegrino, who represents Terraform, argues that the SEC's case relies on selective evidence and testimony from witnesses seeking rewards for whistleblowers. In Kwon's defense, his lawyer, David Patton, explained that Kwon never claimed that the Terra cryptocurrency was completely risk-free.
However, Kwon's absence from the opening day of the trial raises questions. He was arrested in Montenegro in March 2023 for using false travel documents, and Kwon's role in the trial remains uncertain, further complicating the legal proceedings.
Inside the courtroom
The SEC lawsuit alleges that Terraform Labs and Kwon misled investors about the stability of TerraUSD (UST), causing significant market instability. In December 2023, Judge Jed Rakoff ruled in part in favor of the SEC, holding that Terraform Labs engaged in transactions involving unregistered securities. However, the court also sided with Kwon and the platform regarding the offer and sale of security-based swaps, highlighting the complexity of cryptocurrency operations.
Read more: Terra Luna Classic hits new milestone with 5.5 million holders amid growing interest
Awaiting judgment
The judge is expected to announce the date of the next hearing in Tera's case. Given Judge Rakoff's other commitments, it may take some time to determine the schedule. However, many expect that the SEC's primary goal is to secure compensation from Terra, leaving little room for other outcomes.
The ongoing trial involving Terraform Labs, along with other high-profile cases involving figures like Sam Bankman-Fried and Changpeng Zhao, is set to form the legal framework for the cryptocurrency industry in 2024.
Where do you stand on the “fraud versus failure” debate?
