Terraform Labs founder Do Kwon has submitted a court filing urging a federal court to dismiss the U.S. Securities Exchange Commission’s (SEC) request to question him in the country regarding the severe crash of his company’s tokens Terra and Luna.
According to the filing in the U.S. District Court for the Southern District of New York, Kwon’s legal team is firmly opposing any opportunity for the stablecoin creator to provide testimony to U.S. regulators.
The lawyers contend that it is “impossible” to facilitate Kwon’s presence in the U.S. as he remains indefinitely detained in Montenegro. Additionally, they argue that Kwon cannot furnish written testimony to the SEC, as doing so would infringe upon his due process rights under U.S. law.
The SEC has emphasized the need for an expedited questioning of Do Kwon, requesting the court’s permission to proceed before the discovery cut-off date of October 13. However, Kwon’s legal team has countered this proposal, asserting in the filing that an order mandating something impossible serves no practical purpose and risks undermining judicial authority.
Kwon’s legal team earlier contended that the lawsuit represents an inappropriate endeavor by the SEC to govern cryptocurrencies using outdated statutes, especially considering the lack of consensus among Congress, the executive branch, and the agency itself regarding the definition of a “security.”
Kwon and Terraform Labs’ chief financial officer, Han Chang-Joon, were detained in Montenegro in March 2023 for allegedly attempting to leave the country using falsified travel documents. Their original passports had been confiscated in South Korea in October 2022. This legal situation has further complicated the SEC’s efforts to engage with Kwon for questioning.
In February, the SEC initiated a lawsuit against Terraform Labs, alleging that the company provided false information to investors regarding the security of its TerraUSD stablecoin. This stablecoin was designed with the promise of offering returns of up to 20%, assuring investors that it would maintain its peg to the U.S. dollar through a mint-burn mechanism linked to its counterpart coin, Luna.
The lawsuit accuses the defendants of breaching the registration and anti-fraud provisions outlined in both the Securities Act and the Exchange Act.
Meanwhile, 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 through the wider cryptocurrency market. It not only caused a decline in Bitcoin’s price but also triggered a series of events that swiftly wiped out $300 billion in value across the entire cryptocurrency sector.