The Court of Appeals for the Second Circuit has settled on a ruling regarding the subpoena Terraform Labs (TFL) received last year. The court found the serving legitimate, and TFL and Do-Kwon are now obligated to cooperate as the SEC probes into the company.
Do Kwon’s Appeal and Rejection
The US Securities and Exchange Commission slammed Terra with a subpoena during the Messari Mainnet Conference in September last year. Do Kwon initially attempted to evade compliance, even denying entirely that the SEC had served him and his company. However, after the truth surfaced, he filed a suit against the commission.
Earlier this year, TFL questioned the authenticity of the regulator’s subpoena at a district court but lost the case. Following this, the Terra founder turned to the Court of Appeals, which ruled in favor of the SEC. Do Kwon’s appeal contained two major points, which the ruling addressed. The first was that the SEC had violated the rules of practice; however, the court found that regulators had, in fact, complied. TFL also claimed that as a foreign entity, the US commission had no jurisdiction over them. The court negated these claims as well, noting that 15% of Terra’s Mirror users are residents of the States.
The legal report also pointed out that Terraform has US-based employees and has partnered with US companies over the pertinent project. One such collaboration is a $200,000 deal with an American trading platform.
Court Finds TFL’s Arguments Baseless
Additionally, TFL’s legal counsel originally claimed that the SEC’s public hand service was improper. The counsel alleged that the goal was to embarrass Do Kwon. However, they later revealed that the Terra Founder had not permitted them to receive subpoenas.
As a result, the court report noted that since the counsel never provided an address to receive the serving, they could not contest the hand service.
Overall, the court has stated it had reviewed all of TFL’s arguments and found that they were “without merit.” Subsequently, the judge granted the SEC’s request for the firm’s compliance with the investigative subpoenas, affirming the district court’s ruling.
Mirror Protocol Operations on Hold
It is important to note that the subpoena is unrelated to the recent crash of the network’s stablecoin ecosystem. The current case goes back to May 2021, when the US regulators enforcement division emailed CEO Do Kwon regarding Terra’s Mirror Protocol. The Terra blockchain network hosts the Mirror Protocol, a DeFi platform that allows users to mint synthetic stocks.
These assets reflect the price of major US securities such as TSLA and GOOGL and are collateralized by algorithmic stablecoin, UST. Of course, in the wake of its collapse, the protocol has fallen apart, given the lack of a reserve asset. The platform’s governance has also failed to conclude on proposals, and so far, the developers have not given comments.
While the ruling has no ties to the crash, it does come at an ill-fitting time. Do Kwon is currently caught up in another legal battle as South Korean authorities probe into TFL’s role in the Terra collapse.