SEC and Terraform Labs’ Trial Begins; Do Kwon Not Present

The civil fraud trial involving Terraform Labs’ Founder Do Kwon, reportedly began on Monday in Manhattan court. Media journalist Zack Guzman shared a series of X posts, providing more insights into the legal development.

The case had its beginnings back in 2022 when Terraform Labs crashed, following which Kwon was arrested in Montenegro for fraud. A series of events followed, with delays in Kwon’s extradition. Kwon’s lawyers requested the court postpone the trial, which was initially scheduled for January to late March. Though the court granted the postponement, Kwon’s extradition was still in question, leading to his unavailability during the trial.

According to Guzman, Judge Jed S. Rakoff has laid out “ground rules” for the trial, which is expected to last two weeks. The primary rule includes “4-word objections.” The judge reportedly said:

<blockquote> “The only way you can get me mad is a speedy objection. You say 3 words: ‘Objection, lack of foundation.’” </blockquote>

Further, the journalist went on to narrate the selection of the jury panel. The first set of jurors included 6 women and 3 men. Guzman said, “Eventually land on a jury of just 3 men and 6 women – mostly minorities.”

While the hearing began with the SEC, Guzman posited that their arguments were a replica of the FTX case. As per Guzman’s post, the opening and closing lines were almost verbatim: “This is a case about fraud” and “This trial is not about the technology.”

Reuters reported that the SEC attacked Terraform and Kwon, asserting that the company was a fraud. SEC attorney Devon Staren stated, “Terra was a fraud, a house of cards, and when it collapsed, investors lost nearly everything.” However, the Terraform lawyer David Patton defended Terraform, claiming, “Failure doesn’t equal fraud.”