- The US Court of Appeals has ordered Terraform Labs and its CEO Do Kwon to comply with the SEC’s investigative subpoena.
- Kwon and his company challenged a district court’s decision upholding the summons in February but lost the appeal on Wednesday.
- The SEC is investigating Terraform Labs and Kwon for selling unregistered securities in the US through the Mirror Protocol.
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The US Court of Appeals has ordered Terraform Labs and its CEO Do Kwon to comply with the SEC’s investigation into the Mirror Protocol on allegations of violation of federal securities laws.
Terraform Labs ordered to comply with SEC probe
Terraform Labs’ last attempt to avoid prosecution in the US has failed.
court documents It was learned on Wednesday that the United States Court of Appeals for the Second Circuit ordered Terraform Labs and its CEO Do Kwon to comply with investigative subpoenas from the US Securities and Exchange Commission.
The SEC is investigating whether TerraForm Labs and Kwon broke the law in the US by selling unregistered securities through the Mirror Protocol, a DeFi platform for synthetic assets on the now defunct Terra Classic blockchain. After allegedly failing to obtain voluntary cooperation, the SEC produced two investigative subpoenas—one for Kwon, one for Terraform Labs—and serviced Messari Mainnet. personally in Kwon conference September 20, 2021 in New York.
The appellate court’s decision comes after Kwon challenged the New York District Court ruling To confirm the SEC’s summons applications in February. Terraform Labs and Kwon argued that the court should not approve the SEC application because the agency violated its rules of practice by improperly serving summons and that the court had personal jurisdiction due to Kwon being a resident of South Korea. was lacking, not the US
The appellate court rejected both arguments, concluding that “the district court properly approved the SEC’s application,” and “properly concluded that it had individual jurisdiction over Terraform and Kwon.” In explaining its decision, the court wrote that “the SEC followed the rules,” and correctly served investigative subpoenas for both Terraform and Kwon.
With regard to the second issue, the appellate court upheld the district court’s view that the defendants had a substantial relationship with the US because they sold their product online to US customers, retained US employees, and had access to US-based crypto exchanges. entered into legal agreements with The filing also noted that “seeking to enter into an agreement with a US-based company, the appellants indicated that 15% of its Mirror Protocol users are within the US”.
The ruling means that Terraform Labs and Kwon are now forced to provide the SEC with all requested documentation and evidence required in its investigation of the Mirror Protocol. Created by TerraForm Labs, the protocol allows users to create and trade synthetic assets that track the price of real-world securities, including shares of corporations such as Apple and Tesla, listed on the New York Stock Exchange. The SEC considers these assets to be securities potentially and consequently their promotion and sale to US clients as unlawful.
Disclosure: At the time of writing, the author of this article owns ETH and several other cryptocurrencies.