Unfounded Securities Fraud Accusations Against Former Terraform Labs CEO

04/22/2023 02:01 • Crypto & Markets • 61 views

According to reports, the lawyer for Do Kwon, former CEO of Terraform Labs, stated that the SEC’s lawsuit accusing Do Kwon of securities fraud with Terraform Labs Pte is unfounded, partly because the stable currency in question is a currency rather than a security. The lawyer stated in his request to the judge to dismiss the lawsuit that US law prohibits regulatory agencies from using federal securities laws to assert jurisdiction over the digital assets in this case.

Lawyer Do Kwon: The SEC accuses Do Kwon of securities fraud with Terraform Labs without basis

In recent news, it has been reported that Do Kwon, the former CEO of Terraform Labs, is being accused of securities fraud with Terraform Labs Pte. However, according to the lawyer representing Kwon, the accusations are unfounded, as the stable currency in question is a currency rather than a security. The lawyer requested the judge to dismiss the lawsuit, stating that the US law prohibits regulatory agencies from using federal securities laws to assert jurisdiction over the digital assets involved in this case.

Understanding The Accusations

The accusations against Do Kwon stem from his involvement with Terraform Labs Pte, a blockchain-based platform for stablecoin issuance and trading. It is alleged that Kwon and his team raised $25 million through an initial coin offering (ICO) that sold securities to US investors without registering with the SEC. The SEC claims that Kwon’s actions violated Section 5 of the Securities Act of 1933, which requires the registration of securities offerings.

The Argument For Currency

Do Kwon’s lawyer argues that the Terra stablecoin is not a security, but rather a currency, and therefore falls outside of the SEC’s jurisdiction. The Terra stablecoin is designed to track the value of a basket of fiat currencies, similar to how traditional stablecoins are backed by a dollar peg. This means that Terra does not provide investors with the same rights and protections that securities like stocks and bonds do.
Furthermore, the lawyer cites the absence of a white paper that describes the investment opportunity and provides investors with a roadmap of the anticipated development of the platform, which is typical of securities offerings. The argument is that the Terra ICO offered a simple digital currency with no promise of investment returns.

Legal Precedent

Do Kwon’s lawyer also provides a legal precedent to support his argument. In the landmark case SEC v. W.J. Howey Co., the Supreme Court determined that a transaction constitutes an investment contract, and thus a security, if it involves an investment of money in a common enterprise, with the expectation of profits solely from the efforts of others. Based on this decision, the Terra stablecoin does not meet the criteria for a security.

Conclusion

In conclusion, while it remains to be seen how the court will rule on the matter, it is clear that Do Kwon’s lawyer has a compelling argument for why the SEC’s accusations of securities fraud are unfounded. The Terra stablecoin operates as a currency, and thus falls outside of the SEC’s jurisdiction. The absence of a white paper and the lack of promise of investment returns further support the argument that the Terra ICO did not offer securities. It will be interesting to see how this case plays out and how it may impact the regulation of digital assets in the future.

FAQs

1. What is securities fraud?
Securities fraud is the act of deceiving investors or manipulating markets, typically involving the issuance of securities in violation of specific laws or regulations.
2. What is an initial coin offering (ICO)?
An initial coin offering (ICO) is a fundraising method for cryptocurrency ventures in which tokens (digital assets) are sold to investors to fund project development.
3. Is cryptocurrency regulated?
Cryptocurrency is subject to a patchwork of regulations around the world, as governments and regulators continue to grapple with the unique challenges and opportunities presented by this emerging asset class.

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