Attorneys defending the co-founder of Terraform Labs, Do Hyeong Kwon, also known as Do Kwon, have presented their argument that says the U.S. Securities and Exchange Commission (SEC) has no jurisdiction in the matter. The legal team asserts that U.S. law precludes regulators “from using federal securities law to assert jurisdiction over the digital assets in this case.”
Terraform Labs Co-Founder’s Legal Team Claims SEC Lacks Jurisdiction Over Digital Assets in Terra Case
As per Bloomberg, Kwon’s lawyers have filed a motion to dismiss the lawsuit, citing that the SEC’s case relies on outdated regulations and that the agency’s definition of digital assets as securities is far from clear. In fact, Patrick McHenry (R-NC), the House Financial Services Committee chairman, recently expressed that there is “a great deal of uncertainty” regarding the SEC’s enforcement actions. Kwon’s lawyers capitalize on this ambiguity to assert that the SEC’s attempt to categorize all cryptocurrencies as securities falls short.
Kwon’s lawyers stated:
The SEC’s improper assertion of power here by trying to shoehorn all cryptocurrencies into its definition of a ‘security’ fails.
Kwon faces charges by the SEC of leading “a multibillion-dollar crypto-asset securities fraud” filed in mid-February 2023. The SEC alleged that the stablecoin terrausd (UST) and Terra’s token LUNA were “unregistered securities” and that Kwon had created a suite of mirrored assets that replicated the value of U.S. stocks, which were used on the now-defunct defi platform Mirror.
This lawsuit is not the first time Kwon and the SEC have crossed paths. The SEC had previously served Kwon with a subpoena in 2021 over the Mirror protocol, and Kwon had sued the SEC over its lack of jurisdiction. In November 2021, the SEC attempted to compel Kwon with subpoenas, seeking documents from Terraform Labs. Six months later, the once-stablecoin UST depegged, leading to the colossal collapse of the Terra blockchain ecosystem.
Kwon currently is in custody in Montenegro after his arrest on March 23 for possessing false identification. He is at risk of extradition by law enforcement officials from the U.S. and South Korea over the Terra ecosystem’s collapse and transactions involving its native assets, UST and LUNA. According to a recent report, Kwon had paid $7 million to a top law firm in South Korea before the Terra ecosystem’s collapse.