Terraform Labs and the United States Securities and Exchange Commission (SEC) have agreed on a protective order in their ongoing civil case. U.S. District Court Judge Jed Rakoff, presiding over the case in the Southern District of New York, sanctioned this agreement on December 20. This order mandates that most materials labeled as confidential by the parties involved will not be disclosed publicly. Additionally, the court must seal any discovery filings marked confidential before the trial.

Judge Rakoff has expressed that it is “unlikely” he would grant any requests to unseal these documents. However, the order did not elaborate on the specific rationale behind the confidential status, aside from finding “good cause.” The agreement on this protective order was finalized on December 18, with the legal representatives of both the SEC and Terraform Labs, including its co-founder Do Kwon, giving their consent. Currently, Kwon is detained in Montenegro, facing potential extradition to the United States or South Korea.

SEC Charges Terraform Labs with Securities Fraud

The collapse of Terraform Labs, particularly following the depegging of its stablecoin TerraUSD (UST) from the U.S. dollar, marked a pivotal moment in the cryptocurrency world. This incident is believed to have played a key role in the 2022 crypto market downturn. In February, the SEC levied charges against Terraform Labs and Do Kwon, accusing them of conducting a multi-billion dollar crypto asset securities fraud by offering and selling unregistered securities.

The ongoing SEC vs. Terraform civil case could have far-reaching consequences for legal precedents in the cryptocurrency sector. In August, a separate court ruling permitted Terra to issue subpoenas to FTX entities as part of the latter’s bankruptcy proceedings. In November, Judge Rakoff also accepted confidential materials from Jump Crypto Holdings for discovery in this case. The outcome of this case is poised to provide crucial legal guidance for numerous companies operating in the crypto space.

SEC’s Regulatory Approach Under Scrutiny

The SEC’s handling of cryptocurrency firms in the United States has been a subject of considerable debate and criticism. Accusations of a “regulation by enforcement” strategy have been directed at the commission, particularly in its dealings with major players in the crypto industry. The SEC has pending cases against several prominent companies, including Binance, Kraken, Ripple, and Coinbase.

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