The US Securities and Exchange Commission (SEC) has launched an investigation into Terra, according to Bloomberg. The financial watchdog wants to find out whether Terraform Labs, the developer of the failed blockchain, has violated investor protection rules.
Terraform Labs disagrees with the investigation and has filed an appeal. However, the court rejected the appeal and gave the SEC the green light.
SEC cannot let go of UST
The SEC is investigating whether Terraform Labs violated securities and investment product rules with their stablecoin UST. The stablecoin was supposed to maintain a 1-to-1 link to the US dollar through an algorithm and trade in a related token called Luna.
The implosion of UST began on May 7 and sent shockwaves through the crypto markets, ultimately evaporating more than $60 billion in value. In the aftermath, US Treasury Secretary Janet Yellen said this exposed the dangers of stablecoins imitating the US dollar.
Terraform is from South Korea, SEC from America
In the attempted appeal, lawyers for Do Kwon (founder of Terra) argued that the SEC has no jurisdiction over Kwon and Terraform Labs. Both are based in South Korea, although Terraform is registered in Singapore. The lawyers also objected to the procedure of suing Kwon directly instead of suing his lawyers.
However, the court ruled that the SEC subpoenas were valid. Terraform Labs must therefore cooperate with the regulator.
Terra has staff in America
In a response to the decision, the SEC noted that the court found Terraform’s “purposeful and extensive US contacts, such as promotion to US investors, hiring of US-based personnel and contracts with US-based entities” sufficient to investigate Terra in the US. The fact that Terra’s home base is in South Korea does not shield them from liability in the US.
“I find that there is specific personal jurisdiction with respect to both Kwon and Terraform Labs because they have purposefully availed themselves of the privilege of doing business in the United States,” the judge wrote. “There are employees in the United States, including the general counsel, which I think is significant.”
Incidentally, more SEC investigations into Do Kwon are ongoing.
Mirroring behaviour
On Wednesday, Do Kwon lost an appeal to block subpoenas from the SEC over another ongoing investigation, this one into the Mirror Protocol. During a cryptocurrency conference last November, Kwon received a subpoena just before he was to take the stage to speak. The SEC is investigating whether Mirror Protocol violates existing securities laws. This project creates tokens that are supposed to represent the shares of large companies.
SEC and Ripple
The SEC has also been involved in a lawsuit with Ripple since December 2020. According to the SEC, the latter would have violated the securities law with the issuance of their crypto XRP. The latest developments revolve around the fact that in 2018, the SEC would have declared that Ethereum’s issuance of ether is not covered by the Securities Act.
The SEC is now attacking their own William Hinman, Hinman is the former director of the SEC’s Corporation Finance Division and was the one who said ether is not covered by the securities act. According to lawyer Jeremy Hogan, it is a mistake for the SEC to attack their own reasoning in this way.
