Lawyers of Do Hyeong Kwon, the co-founder of Terraform Labs, also known as Do Kwon, have submitted their argument that the U.S. Securities and Exchange Commission (SEC) does not have the authority to pursue the case. The legal team claims that U.S. law prohibits regulators “from using federal securities law to assert jurisdiction over the digital assets in this case.”
Terraform Labs Representive’s Lawyers Assert SEC’s Lack of Jurisdiction Over Digital Assets in Terra Case
Bloomberg reported that Kwon’s attorneys have filed a motion to dismiss the lawsuit, citing that the SEC’s case is based on out-of-date regulations and that the agency’s definition of digital assets as securities is questionable. In fact, Patrick McHenry (R-NC), the House Financial Services Committee chair, recently noted that there is “a great deal of uncertainty” regarding the SEC’s enforcement actions. Kwon’s lawyers take advantage of this ambiguity to emphasize that the SEC’s attempt to classify all cryptocurrencies as securities falls short.
Kwon’s lawyers said:
The SEC’s improper assertion of power here by trying to force all cryptocurrencies into its definition of a ‘security’ fails.
Kwon is being sued by the SEC for reportedly leading “a multibillion-dollar crypto-asset securities fraud” which was announced in mid-February 2023. The SEC alleged that the stablecoin terrausd (UST) and Terra’s token LUNA were “unregistered securities” and that Kwon had created a suite of mirrored assets that replicated the value of U.S. stocks, which were used on the now-defunct defi platform Mirror.
This is not the first time Kwon and the SEC have faced off. The SEC had previously served Kwon with a subpoena in 2021 over the Mirror protocol, and Kwon had taken the SEC to court over its lack of jurisdiction. In November 2021, the SEC attempted to compel Kwon to provide subpoenas, seeking documents from Terraform Labs. Six months later, the once-stablecoin UST depegged, leading to the catastrophic collapse of the Terra blockchain ecosystem.
Kwon is currently in custody in Montenegro after his arrest on March 23 for possessing false identification. He is at risk of extradition by law enforcement officials from the U.S. and South Korea due to the Terra ecosystem’s collapse and transactions involving its native assets, UST and LUNA. According to a recent report, Kwon had paid $7 million to a leading law firm in South Korea before the Terra ecosystem’s collapse.
What do you think the result of the legal battle between Do Kwon and the SEC will be? Sound off about this topic in the comments section below.
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