Crypto firm Terraform reveals SEC subpoena – as it sues SEC

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(Bloomberg) – Terraform Labs, a Singapore-based crypto firm offering synthetic stocks on its blockchain, revealed that the United States Securities and Exchange Commission assigned its chief executive while attending a conference in New York. He made the revelation in a lawsuit that Terraform himself filed against the SEC in response.

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Terraform says in its lawsuit that the SEC’s process server approached Do Kwon, who resides in South Korea, in September when he was about to make a presentation at the “Mainnet 2021” summit. The subpoenas are part of the latest efforts by US authorities to assert jurisdiction over crypto companies, even when they are based overseas, as they seek to expand their global reach in the industry. Lawyers for Kwon and Terraform argue that the subpoenas were an inappropriate attempt by the SEC to claim jurisdiction.

“It’s a smart effort to try and overturn this subpoena, but I’m unaware that a case like this has come to fruition,” said Gary DeWaal, attorney for the Katten law firm who previously was Senior Counsel at the Commodity Futures Trading Commission. , adding that the courts are generally in favor of subpoenas from the SEC. DeWaal said if Terraform’s efforts are successful, the SEC can still seek the information but should work with the foreign governments where Kwon and the company are based.

The SEC did not immediately respond to a request for comment emailed by Bloomberg News.

Link to the trial document

Terraform created the Mirror Protocol, which offers synthetic versions of stocks like Tesla Inc. and exchange-traded funds like Ark Innovation ETF. Terra’s LUNA token is currently the 12th largest cryptocurrency and has a market value of around $ 17 billion.

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Kwon in May had voluntarily consented to an interview requested by the SEC’s enforcement division, according to the lawsuit. After the interview, the SEC requested documents from Kwon and the company, in a request that the alleged lawsuit was too broad and made no sense. In September, the SEC told Kwon’s attorneys they believed sanctions against the company were warranted and shortly thereafter served Kwon with a subpoena in New York, according to the lawsuit.

Read more: Fake Tesla, Apple shares started trading on blockchains

Terraform’s fight with the SEC comes as authorities continue a broad crackdown on crypto companies they say have violated US law. Earlier this month, the CFTC ordered British Virgin Islands-based Tether to pay $ 41 million for lying about backing its token. US authorities have also continued investigations against the crypto exchange Binance, which also indicates that its operations take place outside the United States. In many cases, US authorities have claimed jurisdiction because the companies are said to have US citizens who are clients.

U.S. regulators have also taken more interest in the decentralized finance, or DeFi, space in recent months as asset values ​​rise and more products hit the market. Unregulated crypto markets “won’t end well” if they remain outside the purview of regulators, SEC Chairman Gary Gensler said last month.

Kwon had told The Defiant last month that he was not served at the conference.

Terraform isn’t the only crypto firm opposing the SEC and it comes as other crypto players question whether existing regulatory standards and conventions should even apply when monitoring the SEC. industry. Coinbase Global Inc. accused the agency of “sketchy behavior” regarding discussions about a potential crypto lending product. And Ripple Labs Inc. said the SEC is engaging in a “continuous war” with crypto assets.

CoinDesk reported the lawsuit earlier.

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