The US Securities and Exchange Commission is investigating whether Terraform used its Mirror Protocol to market unregistered securities in a case unrelated to the Terra collapse. SEC Probes Terraform and Kwon Selling of Unregistered Securities Through Mirror Protocol.
Terraform Labs and Do Kwon have filed an appeal against the SEC’s Mirror Protocol subpoenas. According to a summary order filed yesterday, the Second Circuit upheld the subpoenas.
Terraform Labs and its CEO, Do Kwon, must respond to SEC subpoenas relating to the Mirror Protocol, according to a decision issued on Wednesday by the US Court of Appeals for the Second Circuit. The Securities and Exchange Commission is investigating whether Terraform and Kwon sold unregistered securities via the Mirror Protocol, which allows users to trade crypto tokens that resemble major stocks such as Apple and Amazon.
During Messari’s crypto conference, Mainnet, in New York in September 2021, the regulator served Do Kwon with papers. Kwon and Terraform filed an appeal, claiming that the SEC violated its rules by personally serving Kwon and that the court lacked jurisdiction due to Terraform’s lack of presence in the United States.
Both arguments were rejected by the court. It was discovered that the SEC followed the procedures and that Terraform’s counsel was not allowed to receive filings, which is why Kwon was served in person.
US Court Rules Terraform Labs Had US Contacts
The court upheld the view that there were seven contacts with the US in the second element. It stated that Terraform Labs and Kwon promoted the tokens to US-based consumers and investors, that they retained US employees, and that they had agreements to trade the tokens with US-based entities (noting one $200,000 deal with an unspecified exchange). According to the filing, when setting up an agreement with one company, they stated that 15% of Mirror Protocol users are based in the United States. Contrary arguments were also rejected by the court.
This lawsuit is unrelated to the Terra blockchain’s dramatic collapse last month, which saw its native token luna suffer a death spiral as its supply increased exponentially. This was because of its connection to the stable coin TerraUSD (UST), which lost its peg to the US dollar and nearly all of its value. Both projects lost a combined market capitalization of approximately $40 billion.
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