SEC Probe against Terraform Labs, yet another unregistered security fiasco

The Securities and Exchange Commission (SEC) has approached the court, seeking an order compelling the Terraform Labs, and its co-founder and CEO, Do Kwon, to produce required documents and issue a testimony for the SEC’s former investigative subpoenas regarding the company’s Mirroring feature.

According to the SEC, Terraform Labs Mirror Protocol’s mAssets that “mirror” the price of U.S. securities, and obtain Mirror’s “governance tokens” – MIR, could potentially be violating the federal securities laws by making unregistered offer or sale of securities, and selling security-based- swaps outside of a national security exchange, along with acting as an unregistered broker or dealer, as well as engaging in securities transactions by an unregistered investment company. However, despite repetitively getting served with investigative subpoenas, Terraform Labs has refused to produce any documents, together with Kwon’s failure to comply with the testimonial obligations.

“With no legitimate basis, respondents Terraform and Kwon have refused to produce documents and Respondent Kwon has refused to testify in response to two Commission subpoenas…(They) should not be permitted to thwart the Commission’s investigation,” Bloomberg quoted SEC’s filing in the federal court in Manhattan.

Terraform Sues the SEC

Both, the individual defendant, Do Kwon, and Terraform Labs have also filed a case against the SEC last month, suing the commission for violating SEC rules along with the defendant’s individual rights under the U.S. Constitution by serving the subpoenas on him at a New York crypto industry conference.

“The SEC does not address its failure to follow its own rules, and its filings do not deny that it failed to obtain a specific order authorizing service on Do…Ultimately, the court will decide whether the SEC acted properly.”, Bloomberg quoted comments from Terraform dated Friday.

This is not the first time that the community has witnessed the building up of baseless arguments, backing the SEC’s unregistered securities stance in a case. While Terraform Labs is determined to stay out of the regulatory black hole, it may as well find itself deep in the black waters like Ripple.