In the ongoing legal battle involving Terraform Labs and its founder, Do Kwon, Federal Judge Jed Rakoff has permitted Jump Crypto to submit certain materials confidentially during the discovery phase. This decision, filed in New York on Tuesday, adds complexity to the United States Securities and Exchange Commission’s (SEC) lawsuit against the crypto company and Kwon.
Jump Crypto, a key player in the cryptocurrency market, has been under scrutiny for its alleged role in the price manipulation of the stablecoin TerraUSD (UST). According to the SEC, Jump Crypto profited approximately $1.28 billion from these actions. The ruling by Judge Rakoff allows for the possibility of overturning confidentiality should the need arise for public disclosure of documents during the lawsuit.
The SEC’s allegations against Terraform Labs
The SEC’s lawsuit, initiated in February 2023, accuses Terraform Labs and Kwon of a multi-billion dollar securities fraud spanning from April 2018 to May 2022. One of the central claims is that Terraform Labs, through misleading statements and omissions, falsely represented the stability and functionality of its UST algorithm to investors. The SEC alleges that Terraform Labs loaned large sums of LUNA tokens to Jump Crypto to enhance liquidity, but the firm instead continuously sold them in the market, leading to destabilization.
This case gains further gravity considering the collapse of the Terra ecosystem in May 2021, which marked a significant downturn in the crypto market. The SEC highlights that Terraform Labs and Jump Crypto’s actions played a pivotal role in this collapse, with Jump Crypto entering into agreements to purchase substantial amounts of UST in an attempt to stabilize its value.
Upcoming legal proceedings
The legal ramifications for Terraform Labs and its founder are extensive. Not only does the company face a civil suit from the SEC, but Kwon also confronts criminal charges in the United States related to the collapse of Terraform. Currently serving a four-month sentence in Montenegro for alleged document forgery, Kwon awaits potential extradition to the U.S. or South Korea upon completion of his sentence.
As the case moves forward, jury selection is scheduled to begin on January 29, 2024, in Manhattan. Both the SEC and Terraform have requested summary judgments, which could lead to a settlement outside of trial. However, Judge Rakoff’s previous denial of Terraform’s motion to dismiss the case indicates a strong position by the government in proceeding with the lawsuit.
