In a high-stakes conflict, the SEC is intensifying its conflict with Terra and its former leader Do Kwon. The SEC emphasized the importance of free speech, saying, “This is not a case of technology or trial and error; this is a case of fraud.” However, the defense has dismissed these claims as simply false.
But let's get back to it. What exactly does this mean? Let's dig into the drama.
Serious suspicions loom
Despite Kwon's absence, SEC lawyers have filed fraud charges against Terraform Labs and Do Kwon, according to a recent Bloomberg report. SEC attorney Devon Staren made the damning allegations during a civil trial in the Southern District of New York. Stalen explained that Terra was a fraud and its fragile structure collapsed, resulting in huge losses for investors.
By May 2022, Terra's value had plummeted, leading to a catastrophic bankruptcy and losses of more than $40 billion, according to the SEC's assessment.
Read more: Do Kwon freed from Montenegro prison, faces house arrest and extradition battle
Was this just a mistake?
Stalen also likened Terraform Labs to a “house on sand,” whose collapse in 2022 would shock the entire crypto market and cause significant economic damage. The collapse of TerraUSD (UST) caused a chain reaction of losses for numerous companies and highlighted the seriousness of the situation.
legal action
Louie Pellegrino, representing Terraform, argues that the SEC's lawsuit relies on selective evidence and testimony from witnesses seeking whistleblower rewards. In Kwon's defense, Kwon's attorney, David Patton, clarified that Kwon never claimed that Terra's cryptocurrency was completely risk-free.
However, Kwon's absence on the first day of the trial raises questions. Kwon's role in the trial, which was arrested in Montenegro in March 2023 for using false travel documents, remains unclear, further complicating his legal process.
Inside the courtroom
The SEC lawsuit alleges that Terraform Labs and Kwon misled investors about the stability of TerraUSD (UST), causing significant instability in the market. In December 2023, Judge Jed Rakoff ruled partially in favor of the SEC, finding that Terraform Labs had engaged in transactions involving unregistered securities. However, the court also sided with Kwon and the platforms regarding the offering and sale of security-based swaps, highlighting how complex operating cryptocurrencies can be.
Read more: Terra Luna Classic hits new milestone with 5.5 million holders as interest grows
Waiting for judgment
The judge is scheduled to announce the date for the next trial in the Tera case. Given Judge Rakoff's other duties, scheduling could take some time. Nevertheless, many speculate that the SEC's primary objective is to secure compensation from Terra, leaving little room for other outcomes.
The ongoing court case involving Terraform Labs, along with other high-profile cases involving figures such as Sam Bankman Freed and Chao Changpeng, will shape the legal framework for the crypto industry in 2024. We are preparing ourselves.
Where do you stand on the “fraud or failure” debate?
