Terraform Labs Wants Access to FTX Wallets in Fraud Case Defense

Terraform Labs is making headlines once again, this time for seeking access to FTX wallets as part of its defense in its ongoing fraud case. 

A recent report revealed that Terraform Labs has sought permission from a Judge to subpoena information from the bankrupt FTX crypto exchange. The data requested is said to be crucial in Terraform Labs’ defense against fraud charges brought forth by the U.S. Securities and Exchange Commission (SEC). 

Blaming Short Sellers and Alameda Research

The SEC’s lawsuit, filed in February, alleged that Terraform Labs conducted an unregistered securities offering by issuing TerraUSD and Luna tokens without proper compliance with securities regulations. 

The SEC contended that these tokens were, in essence, investment contracts subject to federal securities laws, but Terraform Labs failed to register them accordingly. Do Kwon, co-founder and former CEO of Terraform Labs, was named as a defendant in the lawsuit due to his prominent role in the company’s operations and alleged involvement in the issuance of the tokens.

Terraform Labs, facing the aftermath of the collapse of its algorithmic stablecoins TerraUSD and LUNA, is seeking to shift the blame for the tokens’ failure. Lawyers for the company have alleged that the company cannot be held responsible for the loss in value, instead pointing fingers at short sellers and accusing them of a coordinated attack. 

Specifically, Terraform has named Alameda Research, FTX’s subsidiary firm, as the party behind the alleged effort. In response, Terraform has filed a motion in FTX’s bankruptcy case, seeking to subpoena non-public information from the company’s exchanges about the digital wallets used by short sellers during a critical period.

Potential Implications and Ongoing Legal Battle

Terraform’s motion might have far-reaching consequences for all parties involved. If the subpoenas are issued, the information gathered from the exchanges may shed light on the conduct of short sellers and their possible connections with Jump Trading LLC. This data could help Terraform’s defenses or disclose market manipulation attempts against its tokens.

However, if the application is denied or the evidence collected does not support Terraform’s allegations, the company’s defense strategy may be undermined, leaving it open to legal penalties.