Singapore-based crypto Terraform Labs has filed a fresh lawsuit against the U.S. Securities and Exchange Commission (SEC). This development is in response to the subpoena issued by the securities regulator to Terraform chief executive for attending an event in New York.
The subpoenas are the latest efforts from the U.S. SEC to extend its purview over crypto firms even when based abroad. It is also an effort by the U.S. SEC to extend its global reach in the crypto space.
Terraform Labs said that the SEC’s process server approached its chief executive Do Kwon when he was on his way to the “Mainnet 2021” summit last month in September. The crypto firm’s attorneys argued that this subpoena was an improper attempt by the U.S. SEC to claim jurisdiction.
What Led to the SEC Issuing the Subpoena?
Singapore-based Terraform specializes in offering synthetic stocks on its blockchain through its Mirror Protocol. Similarly, it offers synthetic versions of the ETFs like the Ark Innovation ETF. Terra’s native cryptocurrency LUNA is currently the 11th largest cryptocurrency with a market cap of $17.6 billion.
The lawsuit notes that Kwon had voluntarily consented to an interview by the SEC. It further adds that post the interview, the SEC demanded documents from Kwon and the company. Terraform noted that this request was overly broad and didn’t make sense.
But last month in September, SEC told Kwon’s lawyers that the sanctions were warranted. The latest rift between the SEC and Terraform comes amid a broader crackdown by the U.S. regulators. The U.S. regulators have been cracking down on crypto companies recently.
Furthermore, the U.S. SEC has recently set its eyes on the rapidly emerging decentralized finance (DeFi) space. A few months back, SEC Chairman Gary Gensler warned that unregulated crypto markets “will not end well”.
Gary DeWaal, a former senior trial attorney at CFTC told Bloomberg: “It’s a clever effort to try to quash this subpoena, but I’m not aware of a case like this being successful”.
Even if Terraform’s efforts are successful, the SEC can pursue the information by working with foreign government wherein Kwon and the company is based. DeWaal also said that the courts are usually sympathetic to SEC subpoenas.
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