The 2nd US Circuit Court of Appeals has upheld a ruling that compels blockchain startup Terraform Labs, and its co-founder Do Kwon into complying with a September 2021 Subpoena served him at a New York Conference.
Against initial perception, the subpoena is unrelated to the collapse of the startups’ tokens, including the UST algorithmic stablecoin and Luna Classic (LUNC) tokens. It is, however, related to one of Kwon’s early projects, the Mirror Protocol, which lets users mint synthetic asset that tracks the price of US Securities like Tesla and Apple stock amongst others.
Do Kwon and his lawyers had argued at the time that the Securities and Exchange Commission (SEC) has no jurisdiction over it. Still, the latest ruling by a US Federal Judge affirmed that the regulator has the authority to serve the subpoena, thus invalidating Terraform Labs’ arguments.
“Appellants’ reading of the Rules is contrary to the text and would produce absurd results by allowing a party to insist on service through counsel, but allow the party to block said service by not authorizing their counsel to receive any filings,” the appeals court wrote in its decision.
Part of its basis for declaring that the SEC has the proper jurisdiction is centred on the fact that Kwon’s Mirror protocol which is now unable to function properly with the collapse of UST, is often offered to US investors. The court also highlighted facts in which Terraform Labs paid a US-based exchange platform the sum of $200,000 in order to list the synthetic tokens for trading.
The order to comply with the SEC’s subpoena comes off as one of the many legal woes Do Kwon and his Terraform Labs team are facing at the moment. The collapse of the platform’s associated tokens showed how vulnerable the startup is, and things are not looking better, even though the startup has launched Terra 2.0 after receiving majority backing from the community.
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