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SEC Seeks Summary Judgment in Fraud Case Against Terraform Labs Co-Founder

Terraform Labs

The Securities and Exchange Commission (SEC) has reportedly requested a summary ruling in its civil case against Do Kwon, the co-founder of Terraform Labs.

The SEC alleges that Kwon and his company engaged in fraudulent activities, offering and selling unregistered securities, Bloomberg reported Friday (Nov. 3). These alleged fraudulent activities have resulted in significant market value losses, with at least $40 billion in market value being lost. 

The case revolves around Terraform Labs’ TerraUSD (UST), a stablecoin designed to maintain a peg to the U.S. dollar, which crashed in May 2022, according to the report. This crash led to the bankruptcy of several high-profile crypto companies, including FTX, co-founded by Sam Bankman-Fried.

In its motion for summary judgment, the SEC claims that the evidence against Kwon and Terraform Labs is “clear, undisputed and overwhelming,” per the report. The assets offered and sold by Terraform Labs met the criteria outlined in the Howey Test, a legal standard used to determine if something qualifies as a security. 

The outcome of the summary judgment request will determine whether the case proceeds to trial or if a ruling is made based on the evidence presented thus far, the report said.

Lawyers representing Kwon and Terraform Labs have also sought summary judgment in the case, according to the report. 

Kwon was arrested in Montenegro in March for attempting to travel with a forged passport and has received a four-month prison sentence from a Montenegrin court for the passport violation, the report said. Additionally, Kwon is wanted on fraud charges in South Korea.

Before his arrest, it was reported in February that Kwon appeared to be in hiding, that prosecutors in South Korea had obtained an arrest warrant for him and that a notice from Interpol had law enforcement around the world looking for him. 

The SEC’s recent court filing coincided with the guilty verdict handed down to Sam Bankman-Fried, co-founder of the now-collapsed FTX, on seven counts of fraud and conspiracy. 

The demise of TerraUSD, which had been the third largest stablecoin by market cap before losing its peg, increased the calls for global regulation of cryptocurrency, PYMNTS reported last May.