Do Kwon, the founder of the collapsed ecosystem of Terra (LUNA), lost an appeal seeking to block the Securities Exchange Commission (SEC) from enforcing subpoenas over an ongoing investigation into the Mirror Protocol.
On June 8, a US court dismissed an appeal filed on behalf of Terraform Labs CEO Do Kwon, stating that he and his company are required to comply with Securities and Exchange Commission (SEC) investigations into Mirror Protocol, a platform company based in South Korea.
It is the latest development in legal tensions between the SEC and Kwon, upholding a February ruling requiring Terraform Labs and Kwon to turn over Mirror Protocol-related documents and testify before the SEC.
The Origins of Kwon’s Appeal
Mirror Protocol is a decentralized finance (DeFi) platform built on top of Terra that allows users to trade synthetic versions of stocks, such as Tesla and Apple.
Kwon’s appeal was filed on the basis that the SEC violated its rules when he was first served with a subpoena at the Messari Mainnet conference in October 2021.
The Terraform Labs CEO argued that his firm lacked sufficient presence within US markets. The appeal also argued that the summons should have been served on Kwon’s legal counsel, not him personally.
Terraform Labs Opposition to SEC Subpoenas
Kwon had opposed the SEC’s investigation, arguing that the agency does not have jurisdiction to regulate him or his company. According to the troubled CEO, he is a South Korean citizen residing in Singapore, where his Terraform Labs is incorporated.
However, in upholding the ruling, the appeals court asserted that the company has clients and investors in the US. Kwon also wanted the subpoena dismissed because the SEC did not go through his attorneys in notifying the court, noting that there was no official address to locate him.
US Appeals Court Ruling
The United States Appeals Court for the Second Circuit has ruled that the SEC was justified in subpoenaing Kwon and Terraform Labs on the basis of “the company’s marketing and promotion to United States consumers, retention of United States-based employees, contracts with United States-based entities, United States, and business travel to the United States, all of which related to Mirror Protocol and the digital assets at issue in the SEC investigation.”
The court also dismissed the argument that it was improper for him to be served documents in person due to noncompliance with electronically served SEC subpoenas.
The court stated that business deals with US companies to trade Mirror Protocol assets justified the SEC investigation, where “a $200,000 settlement with a US-based trading platform” was made. Additionally, Terraform Labs “indicated that 15% of Mirror Protocol users are in the United States” during negotiations.
Kwon’s Rising Legal Conflicts
Today’s ruling adds pressure to the scrutiny following the collapse of TerraUSD (UST) and Terra’s native currency, LUNA. The implosion prompted comments from regulators around the world about what happened as government officials highlighted stablecoins as potentially unstable and risky assets.
Following the collapse of Terra, Kwon also faces separate accusations of fraud in handling the Mirror Protocol. Adding to the Mirror Protocol controversy, Terraform Labs is accused of laundering $4.8 million through a South Korean shell company.
By Audy Castaneda
