The U.S. Securities and Exchange Commission (SEC) has filed a motion for summary judgment in its case against Terraform Labs, the company behind LUNA and UST, and its founder, Do Kwon.
In a motion filed in the Southern District of New York, the securities regulator sees no need for a lengthy trial as “the evidence that establishes Defendants’ violations is clear, undisputed, and overwhelming.”
Summary judgments in the U.S. are authorized when the record shows no genuine dispute to any material fact.
“No rational jury could conclude that Kwon was not liable for Terraform’s violations of the Exchange Act,” says the SEC in its motion.
Kwon was the co-founder of Terraform Labs, the company behind the Terra blockchain ecosystem, once one of the largest in the industry. It all came crashing down when the network’s algorithmic stablecoin UST de-pegged in May 2022 and brought down its sister token, LUNA. In days, over $40 billion was wiped out, sparking the most extensive series of bankruptcies and turmoil in the sector’s young history.
The SEC accuses Kwon and his firm of offering and selling unregistered securities in LUNA, UST, and the Mirror token (MIR). It also alleges that the defendants made materially false and misleading statements on Medium, Discord, Twitter, and in public interviews.
The false statements included claiming that Chai, a payments app on the Terra network, was processing millions of transactions when it was not. Leaked messages between Chai co-founder Daniel Chin and Kwon showed the latter admitting to creating bogus transactions to deceive investors.
“I can just create fake transactions that look real…which will generate fees,” read one text from Kwon. When Chin inquired about whether their crime could be discovered, Kwon responded with, “I won’t tell if you won’t.”
“For the foregoing reasons, summary judgment is warranted against Defendants Terraform and Kwon on all of the SEC’s claims,” concluded Devon Staren, the SEC’s Enforcement Division’s trial counsel.
On the same day the SEC requested a summary judgment, Do Kwon filed a motion requesting a dismissal of the lawsuit against him. He claimed that the regulator had failed to prove he was guilty of any crime.
“After two years of investigation […] the SEC is evidentiarily no closer to proving that the Defendants did anything wrong,” Kwon’s filing says.
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