Lawyers representing Do Kwon, co-founder of Terraform Labs, have requested a federal court to reject the United States Securities and Exchange Commission’s (SEC’s) request to question Kwon in the United States regarding the collapse of the Terra Money ecosystem. This request was made in a filing on September 27th. Kwon’s legal team argued that it would be impossible for him to be questioned in the US as he is currently detained in Montenegro with no scheduled release or extradition date.
In addition to the impossibility of appearing in the US, Kwon’s lawyers also asserted that providing a written testimony to answer the SEC’s questions would be inconsistent with his right to due process under US law. They stated that an order mandating something impossible serves no practical purpose and risks undermining judicial authority.
Although Kwon’s lawyers did not object to a deposition, they specified that it would need to take place in Montenegro, where Kwon is currently out on bail. They emphasized that a Montenegrin court has indicated the possibility of holding a hearing on October 13th or October 26th, during which Kwon would be asked the SEC’s questions. However, the SEC has hinted that it may consider this process inadequate and pursue another deposition of Kwon after the discovery cut-off date, which is also October 13th.
The SEC had filed a lawsuit against Terraform Labs and Kwon on February 16th, accusing them of orchestrating a multi-billion dollar crypto asset securities fraud. The lawsuit alleged that Terraform and Kwon promoted their Anchor Protocol, which was advertised to pay out 20% interest on USTC deposits. The SEC also claimed that Terraform and Kwon misled investors about the stability of Terra’s stablecoin.
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Kwon and Han Chang-Joon, the chief financial officer of Terraform Labs, were arrested in Montenegro in March 2023 for allegedly using false travel documents when attempting to leave the country. Their original passports had been confiscated in South Korea in October 2022.
The legal developments in this case highlight the global reach and complexity of regulatory actions in the cryptocurrency industry. The SEC is actively pursuing individuals and companies involved in alleged fraud and deceptive practices, even if they are located in foreign jurisdictions. However, navigating cross-border legal processes can present challenges, as demonstrated by Kwon’s current situation in Montenegro.
As the case progresses, it will be interesting to see how the court handles the issue of questioning Kwon and whether alternative arrangements, such as a deposition in Montenegro, will be considered sufficient. The outcome of this case will likely have implications for future regulatory enforcement actions involving individuals and businesses operating in the cryptocurrency space.
It is important for regulators to strike a balance between holding individuals accountable for their actions and ensuring that due process rights are respected. The ability to question individuals involved in alleged securities fraud is crucial for gathering evidence and building a strong case. However, it is equally important to consider the practical limitations and legal rights of the individuals involved. Finding a resolution that satisfies both objectives will be key in maintaining confidence and integrity in the regulatory process.
As the legal battle between Kwon, Terraform Labs, and the SEC continues, it is clear that this case is attracting significant attention and will serve as a precedent for how regulators address similar issues in the future. The outcome of this case will likely have far-reaching implications for the regulation of the cryptocurrency industry and the enforcement of securities laws. It will be important for all parties involved to carefully consider the legal and practical considerations as they navigate this complex legal landscape.
