Recently, the lawyers representing Terraform Labs co-founder, Do Kwon, argued against the allegations made by the US Securities and Exchange Commission (SEC) in court. The SEC had sued Kwon for allegedly defrauding US investors by illegally offering unregistered securities. On April 21, Kwon’s lawyers requested the judge to dismiss the lawsuit on the basis that the regulator’s acquisitions were unfounded. In addition, they claimed that US law prohibits regulators from using federal securities law to assert jurisdiction over the digital assets in this case. Bloomberg reported that while requesting to dismiss the lawsuit, Kwon’s lawyers asserted that the stablecoin at issue is a currency, not a security, and the SEC had failed to prove that Kwon had defrauded US investors in connection with Terra’s $40 billion collapse of the TerraUSD (UST) and Luna (LUNA) cryptocurrencies.
This legal battle began when Do Kwon was arrested on charges related to fake documents at Podgorica airport in Montenegro on March 23. At the time of his arrest, he was attempting to fly to Dubai. Following his arrest, both South Korean and American authorities requested his extradition. It remains unclear as to which country, if any, would be the most likely to be granted the extradition of Kwon.
Recently, the Seoul Southern District Court denied an arrest warrant for Terraform Labs co-founder Shin Hyun-Seong. While prosecutors saw Kwon’s arrest as an opportunity to pin down Shin, the court denied the request while citing unconfirmed allegations and the unlikeliness of Shin being a flight risk or destroying evidence.
The case against Kwon has raised questions about the legality of digital assets and how they are classified under US law. The SEC has been vocal about cracking down on unregistered securities offerings involving digital assets, which has prompted some critics to argue that the agency is overreaching its jurisdiction.
The ongoing legal battle between Do Kwon and the SEC highlights the need for clear rules and regulations regarding digital assets. The lack of clarity around the classification of digital assets is a major roadblock to their mainstream adoption. It creates a cloud of uncertainty, which can hinder innovation and investment in the digital asset space.
On the one hand, some lawmakers and regulators believe that digital assets should be regulated in the same way as traditional securities. On the other hand, some argue that digital assets have unique characteristics that require a new regulatory framework altogether.
One possible solution to this conundrum is the creation of a new regulatory body specifically tasked with regulating digital assets. Such a body could develop clear rules and regulations around the classification, trading, and issuance of digital assets. This would help promote innovation while ensuring investor protection.
Meanwhile, the legal battle between Do Kwon and the SEC is likely to continue for some time. It remains to be seen how the court will rule in the case and whether it will set a precedent for future cases involving digital assets. The outcome of this case could have far-reaching implications for the digital asset industry and its adoption in the mainstream.