The SEC Is Already Investigating UST, According To Sources
The SEC is likely already investigating what happened to UST over the past week, according to a report.
According to a report from The Block in which it quotes two former SEC lawyers, the US Securities and Exchange Commission (SEC) is already probing into the events surrounding UST and its depegging of USD.
Philip Moustakis, who left the SEC’s enforcement division to work for private sector in 2019, said:
“The SEC is already on the scene as they are investigating the Mirror protocol.”
The Block also quoted SEC spokesperson, who said:
“The SEC does not comment on the existence or nonexistence of a possible investigation.”
Stablecoins have been widely debated in the US regulatory framework. Do Kwon the Founder and CEO of Terra tweeted last month:
But, according to Moustakis, it gets more complicated:
“Even if there’s a question as to whether UST is a security. Even if the stablecoin as designed may have eluded the application of the federal securities laws, the subsequent transactions could drive it back into the purview of the SEC.”
If a stablecoin loses its stability, it would be hard to claim that it not what it is supposed to be and therefore it may well lose its claims not to be based on an expectation of a third party acting to create profit for investors. In other words, changing facts and circumstances surrounding an asset can change whether the SEC approaches it as a security.
The events surrounding UST draws attention to the associated Anchor protocol’s promise of 20% returns on staked UST, as well as the Luna Foundation Guard’s frenetic efforts to inject new capital to preserve the peg.
Going past questions of whether stablecoins are securities, questions rise about the SEC’s international reach.
Though members of the crypto world have denied that Do Kwon, a South Korean national, will face repercussions from the US regulator, the commission subpoenaed him personally over the activities of Terraform Labs and Mirror, a protocol for synthetic assets. It’s difficult but not impossible for the US regulator to cross borders.
That SEC served Kwon papers in September 2021 at the Messari Mainnet Conference in New York before he was to speak on-stage. Kwon subsequently disputed the SEC’s right to regulate him — a case he lost in a Manhattan court in February, giving the SEC the right to continue its investigation into Terraform Labs.
Back then, Kwon denied being served at all. In a moment from that conversation that went viral, Kwon said:
“It’s fascinating when talking to Americans that they’re sort of obsessed with American policy and American regulators and things like that. It’s quite possible that in other parts of the world they have other priorities and other things to pay attention to.”
Despite this disinterest in American policy and American regulators, TerraUSD was pegged to the US dollar. Mirror Protocol allowed trading of synthesized or “mirrored” versions of US stocks like Tesla and Apple in exchange for the Terra blockchain-based UST.
In December, Kwon’s lawyers argued that “the court lacks jurisdiction over Mr. Kwon because he is not a United States resident and has no case-related contacts with the U.S,” which failed to hold.
