According to a recent court filing, crypto startup Terraform Labs has been ordered by a US district judge in the Southern District of New York to comply with the subpoenas of the Securities and Exchange Commission (SEC). This subpoena enforcement action had been filed by the US regulator in the second week of November last year against the CEO of Terraform Labs, Do Kwon and the startup itself. J. Paul Oetken, the United States district judge had signed a court order on February 17th, 2022. The details show that the subpoenas had been filed by the SEC to compel the company and its chief executive to comply with the authority’s ‘fact-finding investigation’.
This investigation was launched due to Mirror Protocol, which is an application that Terraform Labs had launched back in 2020. People can use the app for trading mirrored assets that have their prices tied to US securities. The securities regulator wants to know why the court should not compel Kwon and Terraform Labs to provide documents asked for in the subpoenas and compel the chief executive to give testimony. A month before the SEC took enforcement action against Terraform Labs i.e. in October, the startup and its CEO had disclosed that they were going to sue the SEC.
This was because the US regulator had served the subpoena to the CEO at a conference happening in New York. Kwon and Terraform Labs (TFL) had insisted that the subpoenas had not be served via the proper channels and that the US regulator did not have any jurisdiction over the companies. According to the lawsuit filed against the SEC, the company said that the attorneys of the US regulator are aware that both Kwon and TFL have maintained that the SEC has no jurisdiction over them. The lawsuit said that they had not asked Dentons lawyers if they were authorized to accept subpoenas.
Last Thursday, despite the lawsuit against the SEC, TFL and Kwon had been ordered by a Southern District Judge of New York to comply with the subpoenas of the regulator. After all the filings between the two parties had been reviewed by the court, along with an oral argument that was presented via a telephone conference, Judge Paul Oetkenhad granted the wishes of the SEC. The court filing further said that the order was stayed for about 14 days for the purpose of additional briefing about a potential stay if an appeal is made.
As far as Mirror protocol is concerned, it is still operating in the market and is actually Terra blockchain’s fifth-largest decentralized finance (defi) protocol. The total value (TVL) locked on the synthetics protocol is about $587.34 million for on-chain price exposure to assets in the real world. The accusations that have been made against Kwon and Terraform Labs is for creating, promoting as well as offering to sell MIR tokens and assets to investors in the United States. This is not the first legal action that the SEC has taken against a crypto firm and it doesn’t seem to be backing down.