Terraform Labs co-founder Do Kwon has requested a lawsuit filed against him by the Securities and Exchange Commission in the U.S. District Court for the Southern District of New York be thrown out because the SEC has yet to prove that he “did anything wrong,” a Friday court filing shows.
“After two years of investigation, the completion of a discovery period that resulted in the taking of more than 20 depositions, and the exchange of over two million pages of documents and data, the SEC is evidentiarily no closer to proving that the Defendants did anything wrong,” wrote Kwon’s attorneys.
“Indeed, with the close of fact and expert discovery, the deficiencies in the SEC’s case have gotten worse, as it is now apparent that admissible evidence does not exist to support many of the SEC’s claims and that the SEC knew some of its allegations were false when it filed the Amended Complaint,” the filing states.
The SEC suit, filed in February, alleged that Kwon and accomplices defrauded investors in a multibillion-dollar scheme in which they “committed fraud by repeating false and misleading statements to build trust before causing devastating losses for investors," SEC Chair Gary Gensler said at the time.
The suit alleged, among other things, that Kwon and his company made misleading statements about the function of the blockchain in relation to South Korea-based payment system Chai; and also alleged that since June 2022, Kwon has secretly moved more than $100 million into a Swiss bank account for personal gain, largely while on the run after the collapse of his crypto company.
Terra, Terraform Labs’ stablecoin which Kwon repeatedly touted as “yield-bearing,” depegged from the U.S. dollar in May 2022, destabilizing the crypto market and causing widespread losses. Terra’s value plummeted to near zero. Today, Terra is valued at $0.000062. Just one month before the crash, it hit an all-time high of $119.18.
In last week’s filing, however, Kwon’s lawyers called the allegation regarding Swiss bank transfers “outrageous” and “a transparent attempt to make this case seem like FTX, Celsius, and other cases involving thefts of customer funds.”
“The SEC knew this allegation was false when it filed this case. But to this day, the SEC has preferred to advance the narrative that Defendants sought to profit from their market misfortunes—which they did not—rather than publicly correct the record, as they should,” the filing said.
Former executives from both FTX and Celsius are also the focus of cases in the Southern District of New York, where the SEC’s lawsuit against Kwon was filed. FTX founder Sam Bankman-Fried is currently on trial on several fraud and conspiracy charges. Celsius founder Alex Mashinsky has been charged with defrauding Celsius customers and market manipulation.
Kwon spent nearly a year on the lam following the Terra ecosystem’s collapse before he was detained in March in Montenegro. Though he’s currently out on bail and under house arrest, his attorneys said in a court filing last month that the SEC’s request to question him was currently “impossible.” Kwon’s attorneys also said that compelling him to provide written testimony to the commission’s questions would be “inconsistent with his right to due process under the United States Constitution.”