Kwon Takes on SEC: Multibillion-Dollar Crypto Fraud Case Jurisdiction Challenge

"Co-founder of Terraform Labs, Do Kwon, Defended by Attorneys Arguing SEC Lacks Jurisdiction over Digital Assets"

The legal team representing Do Hyeong Kwon, also known as Do Kwon, co-founder of Terraform Labs, has argued that the U.S. Securities and Exchange Commission (SEC) lacks jurisdiction in the case. In a motion to dismiss the lawsuit, Kwon’s lawyers have cited outdated regulations and the SEC’s unclear definition of digital assets as securities as the basis for their argument. The legal team asserts that U.S. law precludes regulators “from using federal securities law to assert jurisdiction over the digital assets in this case.”

Kwon is facing charges of leading “a multibillion-dollar crypto-asset securities fraud” filed by the SEC in mid-February 2023. The SEC alleges that the stablecoin terrausd (UST) and Terra’s token LUNA were “unregistered securities” and that Kwon had created a suite of mirrored assets that replicated the value of U.S. stocks, which were used on the now-defunct defi platform Mirror. Kwon’s lawyers argue that the SEC’s attempt to categorize all cryptocurrencies as securities falls short, given the ambiguity surrounding the agency’s enforcement actions.

This lawsuit is not the first time Kwon and the SEC have crossed paths. The SEC had previously served Kwon with a subpoena in 2021 over the Mirror protocol, and Kwon had sued the SEC over its lack of jurisdiction. In November 2021, the SEC attempted to compel Kwon with subpoenas, seeking documents from Terraform Labs. Six months later, the once-stablecoin UST depegged, leading to the colossal collapse of the Terra blockchain ecosystem.

Kwon is currently in custody in Montenegro after his arrest on March 23 for possessing false identification. He is at risk of extradition by law enforcement officials from the U.S. and South Korea over the Terra ecosystem’s collapse and transactions involving its native assets, UST and LUNA. According to a recent report, Kwon had paid $7 million to a top law firm in South Korea before the Terra ecosystem’s collapse.

The legal battle between Kwon and the SEC is ongoing, with both parties presenting their arguments. The outcome of the case remains uncertain, as the issue of jurisdiction over digital assets is still a matter of debate.

Cryptocurrency and decentralized finance (defi) have become increasingly popular in recent years, challenging traditional financial systems. As a result, regulators around the world are struggling to keep up with the pace of innovation and establish clear guidelines for the industry. The legal battle between Kwon and the SEC is just one example of the ongoing struggle to define the regulatory landscape for digital assets.

In conclusion, the legal battle between Do Kwon and the SEC is a complex issue that highlights the challenges of regulating digital assets. Kwon’s lawyers have argued that the SEC lacks jurisdiction in the matter, citing outdated regulations and the agency’s unclear definition of digital assets as securities. The outcome of the case remains uncertain, and the issue of jurisdiction over digital assets is still a matter of debate. As the cryptocurrency and defi industries continue to grow, regulators will need to establish clear guidelines to ensure investor protection and prevent fraud.

Martin Reid

Martin Reid

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