The noose is tightening on Terraform and its co-founder! – Since the collapse of the stablecoin of Terra, the UST, which itself led to the fall of its LUNA token, the bad news keeps coming. Indeed, the Terra Luna protocol is bogged down in the legal battle between it and the Securities and Exchange Commission (SEC) vis-à-vis the Mirror protocol.
Reminder on the legal battle between the SEC and Terraform Labs and Do Kwon
The SEC had issued subpoenas to Terraform Labs as well as to his CEO Do Kwon. The question then was to determine whether they were involved in the sale of unregistered securities through the Mirror protocol. Indeed, this protocol allows users to exchange crypto tokens that follow the price of popular stocks, such as Apple, Amazon or Google.
In short, the SEC criticizes the Mirror protocol of having engaged in the sale of illicit financial securities. However, the Mirror protocol is built on the Terra blockchain. This is why the securities constable decided to subpoena Terraform Labs and its CEO Do Kwon. It is on this same foundation that the SEC has filed a lawsuit against Ripple (XRP) in December 2020.
Moreover, it must be said that the SEC had taken Do Kwon off guard. The subpoena for this matter having been issued last November, at the MainNet event in Manhattan, when he was about to take the stage.
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Terra’s appeal dismissed by US Court of Appeals
Terraform Labs and its CEO Do Kwon had appealed the New York District Court’s decision. Lawyers for Do Kwon and Terraform Labs appealed. The SEC then had no jurisdiction to issue these subpoenas to South Korean nationals. Furthermore, Do Kwon’s lawyers argued that the subpoenas should have been issued directly to them.
However, on June 8, 2022, the United States Court of Appeals dismissed this appeal. She then decided that Terraform Labs should comply with assignments to appear regarding Mirror. Indeed, the Court of Appeal concluded that the trial judgment was valid:
“I conclude that there is specific personal jurisdiction over Do Kwon and Terraform Labs because they deliberately availed themselves of the privilege of doing business in the United States. There are employees in the United States, including the general counsel, which I think is telling. »
Excerpt from the decision of the District Court of New York
In addition, the Court of Appeal has validated the SEC argument. He is presented in defense to the appeal filed by Terraform Labs and Do Kwon. According to him, the SEC argued that “Terraform’s extensive and useful contacts, such as promotion to US investors, employment of US-based personnel, and contracting” with US entities. These entities demonstrated that the company must respond to a certain responsibility on American territory.
Thus, after the fine of $78 million inflicted by South Korea, Do Kwon again risks getting his hands on the Mirror protocol affair.
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