Do Kwon Seeks Dismissal of SEC’s Interrogation Request – Terraform Labs founder Do Kwon has submitted a court document to the U.S. District Court for the Southern District of New York, requesting the dismissal of the U.S. Securities Exchange Commission’s (SEC) demand to interview him in the United States regarding the significant decline in the value of his company’s tokens, Terra and Luna.
In the filing, Kwon’s legal team vehemently opposes any opportunity for the creator of the stablecoin to provide testimony to U.S. regulators. They argue that it is “impossible” to facilitate Kwon’s presence in the U.S. due to his ongoing detention in Montenegro. Furthermore, they contend that Kwon cannot supply written testimony to the SEC, as doing so would violate his due process rights under U.S. law.
The SEC has stressed the importance of swiftly questioning Do Kwon, seeking court approval to proceed before the discovery cut-off date of October 13. In response, Kwon’s legal team has opposed this request, stating in their filing that mandating an unattainable action serves no practical purpose and could erode judicial authority.
Previously, Kwon’s legal team argued that the lawsuit signifies an improper attempt by the SEC to regulate cryptocurrencies using outdated laws, particularly given the absence of consensus among Congress, the executive branch, and the agency itself regarding the definition of a “security.” In March 2023, Do Kwon and Terraform Labs’ chief financial officer, Han Chang-Joon, were apprehended in Montenegro on suspicion of attempting to exit the country with fraudulent travel documents.
Their original passports had been confiscated in South Korea in October 2022. This legal situation has added complexity to the SEC’s efforts to engage with Kwon for questioning. In February, the SEC initiated legal action against Terraform Labs, alleging that the company disseminated false information to investors concerning the security of its TerraUSD stablecoin. This stablecoin was promoted with the promise of delivering returns of up to 20% and assuring investors that it would maintain its peg to the U.S. dollar through a mint-burn mechanism connected to its counterpart coin, Luna.
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The lawsuit accuses the defendants of violating the registration and anti-fraud provisions outlined in both the Securities Act and the Exchange Act. Simultaneously, the crash of both TerraUSD and Luna in May 2022 had profound repercussions, resulting in a staggering $60 billion loss in Terra’s ecosystem’s overall market value. This event sent shockwaves throughout the broader cryptocurrency market, leading to not only a decline in Bitcoin’s price but also triggering a series of events that rapidly erased $300 billion in value across the entire cryptocurrency sector.