The SEC’s victory against Terraform and Do Kwon opens the way for UST investigations and class lawsuits


Mirror Protocol court defeat paves the way for a broader investigation into the collapse of TerraUSD.

First Circuit Court of Appeals ruled in favour of the SEC in Terraform Labs’ appeal against the Southern District of New York yesterday. At Messari’s MainNet event in Manhattan in November, the SEC presented founder Do Kwon with a subpoena.

It was contended that the SEC did not have jurisdiction over Kwon and Terraform Labs, both of which are headquartered in South Korea, during the attempted appeal (though Terraform is registered in Singapore). December saw Kwon’s claim to have no authority over SEC re-emerge. They opposed serving Kwon directly rather than via his lawyers.

It was Terraform’s “‘purposeful and extensive U.S. connections,’ such as advertising to US investors, hiring US-based staff, and contracting with US-based businesses,” that the court cited in its response to the judgement as to the foundation for the finding that a base in South Korea did not protect the corporation from US responsibility. Terraform has a South Korean base.

Kwon and Terraform Labs “purposefully availed themselves of the benefit of conducting business in the United States,” noted a judge in an early district court verdict. We have people in the US, including a general counsel. That tells me something.”

Mirror Protocol, which enabled users to exchange tokens whose values reflected those of US equities, as well as the wider network of associated projects, are both directly and indirectly affected by this case. TerraUSD (UST), the cryptocurrency that sank to a $40 billion loss in value early in May, is the most notorious example.

Law firm partner David Shargel told The Block that “whatever the Second Circuit determines would either inspire a class-action lawsuit in the United States or really throw some water on plaintiffs’ attorneys even considering it.”

As a result, the Second Circuit’s recognition of Terraform as subject to its jurisdiction in the Mirror case has implications for future legal action by US authorities as well as for private citizen class actions.

Philip Moustakis, an attorney who left the SEC to join Seward & Kissel’s blockchain and cryptocurrency practice told The Block in an email: “As the Second Circuit made clear, courts will find jurisdiction, including over foreign persons and issuers, where US capital markets are accessed, tokens promoted to US investors, and promoters facilitate secondary trading in the US.”

UST’s main designers and Do Kwon’s alleged money laundering were under investigation, according to South Korean news site JBTC on June 9. Bloomberg’s Matt Robinson also reported that the SEC has initiated an investigation into the UST disaster, citing an unknown source.

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