Terraform Labs Strike Back On SEC Subpoena Against CEO Do Kwon
Terraform Labs and its CEO, Do Kwon, are challenging the U.S. Securities and Exchange Commission (SEC), saying the regulator improperly served Kwon subpoenas at Mainnet 2021 despite not having jurisdiction over Kwon or his company. They have filed a New York court to dismiss the subpoenas.
Last month SEC served Terraform CEO Do Kwon with a subpoena during the Mainnet conference in New York City. Kwon would go on to file his own lawsuit against the securities watchdog, claiming the agency violated his rights to due process by improperly serving him.
In the SEC’s own proceedings against Kwon, the agency is seeking a court order to compel Kwon and Terraform Labs to “comply with investigative subpoenas for documents and testimony.”
Because the SEC’s lawyers did not get permission from the Commissioners to subpoena Kwon – which must be done in cases where the subpoenaed party is represented by lawyers – Kwon’s attorneys say he was improperly served, rendering the subpoenas invalid.
The investigation is inquiring into whether Terraform Labs, Kwon, or others violated US securities laws, particularly related to its Mirror Protocol and associated governance tokens. The agency has called the effort a “fact finding investigation.”
On Friday, Kwon’s camp filed its opposition to the SEC’s request to enforce the subpoenas. The main issue, according to Terraform’s legal team, is that the SEC allegedly violated its Rules of Practice and the Administrative Procedure Act in its attempt to serve the subpoenas. They argue the SEC lacked jurisdiction to serve those entities.
According to the filing:
“TFL is incorporated under the laws of Singapore and maintains corporate offices in Singapore and South Korea. Mr. Kwon is a citizen of South Korea and resident of Singapore. By statute, the SEC cannot serve administrative subpoenas outside the United States.”
Instead, the filing claims the SEC is permitted to obtain the information through accepted international protocols, like the International Organization of Securities Commissions’ Enhanced Multilateral Memorandum of Understanding, since securities regulators in Singapore, Korea and the U.S. are all members.
Under the leadership of Gary Gensler, the SEC has expanded its crypto regulation efforts. But with thousands of projects, the regulatory body has focused its efforts on major players like Coinbase. The Mirror Protocol’s fast growth – documents filed by the SEC state the mAssets have a total value of $437 million and the protocol’s governance token has a market capitalization of $407 million – puts Terraform Labs squarely in the SEC’s crosshairs as a major crypto project.
