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In reaction to the US Securities and Exchange Commission (SEC) amplifying investigation into Terraform Labs, the Singapore-based crypto firm released a statement saying they have filed a case in federal court in New York regarding two investigative subpoenas by the agency. The SEC issued the subpoena and attempted to serve upon CEO Do Kwon, a citizen of South Korea, while he was attending the Messari Mainnet event in New York City on September 20. Terraform Labs, in the statement, said,
“The principle basis for the complaint is that the subpoenas are invalid and unenforceable because the SEC failed to follow its own rule that requires a specific Commission order of authorization to serve an individual personally if he is represented by counsel, and in any event attempted service of a subpoena on Do could not suffice as service on TFL.”
According to the company, the SEC has filed a federal court proceeding seeking to compel compliance with the subpoenas despite their clear failure to follow its own rules. “Ultimately, the court will decide whether the SEC acted properly,” it said. At the end of last week, SEC publicly declared that it had filed a subpoena enforcement action against Terraform Labs and its CEO to direct them to comply with investigative subpoenas for documents and testimony. The investigation is regarding the Mirror Protocol, launched by Terraform Labs last year. Users create and trade digital assets referred to as mAssets that "mirror" the price of US securities and obtain MIR, its “governance tokens.” At $3.14, Mirror Protocol’s MIR token is currently down 76% from its all-time high of $13 in April. The SEC is now investigating whether Terraform Labs, Kwon, and others violated the federal securities laws by not registering the sale of securities, selling security-based- swaps outside of a national security exchange, acting as an unregistered broker or dealer, or engaging in securities transactions by an unregistered investment company. However, despite several attempts to negotiate with counsel, both the company and the CEO have refused to produce any documents, said the regulator. The SEC is seeking an order from the court directing Terraform Labs and Kwon to show cause why the court should not compel them to produce documents as required by the subpoenas and compel Kwon to appear for testimony. Besides Mirror Protocol, Terraform Labs is also behind the algorithmically-governed stablecoin platform. Thanks to the LUNA supply burn, its stablecoin UST has reached a market cap of $5.2 billion, up from $2.9 billion early last week. As we reported last month, Kwon has predicted UST’s market cap to exceed $10 billion by the end of this year. Terra’s native asset LUNA is a $22.5 billion cryptocurrency that has been one of the biggest gainers of 2021, up 7,673% YTD while trading at $50.62, just 8% away from its ATH about a week back.