Terraform Labs Seeks FTX Subpoena to Defend Against SEC’s Fraud Allegations

Terraform Labs (TFL), the developer of the now-failed Terra blockchain, has taken significant steps to defend itself against the U.S. Securities and Exchange Commission (SEC). The company is seeking to subpoena relevant documents from bankrupt cryptocurrency exchange FTX, according to a July 19 court filing.

The SEC’s lawsuit, filed in February, alleges that Terraform Labs and its former CEO, Do Kwon, engaged in fraudulent activities and market manipulation, which ultimately led to the collapse of Terra/LUNA tokens. The allegations revolve around TerraUSD, an algorithmic stablecoin whose value suffered a drastic slump, resulting in substantial losses for investors.

Lawyers representing Terraform have stated that coordinated attacks, which destabilized the stablecoin, were likely carried out using the FTX exchange. To support their defense against the SEC’s accusations, Terraform Labs is now seeking access to specific information regarding accounts, wallets, and assets from FTX.

The SEC claims that Terraform Labs and Kwon misled investors about the stability of TerraUSD. Algorithmic stablecoins like TerraUSD utilize market incentives and algorithms to maintain price stability. TerraUSD was linked to Luna, a regulatory token, to ensure stability. However, the SEC contends that Terraform and Kwon falsely represented the stablecoin’s algorithmic recovery after its elimination in May 2021, alleging that they instead resorted to jump trading to boost its value.

In response to Terraform’s claims that jump trading was not the cause of the de-pegging incident in 2021, the SEC stands firm in its allegations against the company and its former CEO. As the legal battle unfolds, both parties are likely to present their evidence and arguments during the upcoming hearing scheduled for 10:00 a.m. on August 2.

Terraform Labs faces an uphill battle as it fights to clear its name amid mounting legal challenges. The outcome of the subpoena request to FTX could be crucial in supporting its defense against the SEC’s accusations. The access to data on accounts, wallets, and assets on the FTX exchange may provide valuable insights into potential coordinated attacks and market activities, shedding light on whether any malicious intent or manipulation played a role in TerraUSD’s collapse.

It is essential to note that Terra’s former CEO, Do Kwon, is simultaneously dealing with legal troubles beyond the SEC lawsuit. Kwon was found guilty in a Montenegro court for attempting to leave the country in March with a fake Costa Rican passport, resulting in a four-month prison sentence.

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