SEC vs. TerraLabs: Defense Presents Final Arguments to Jury in Do Kwon Case

• The SEC lawsuit against Terraform Labs and Do Kwon is nearing its conclusion, with closing arguments scheduled for this Friday.
• Allegations include fraudulent activities resulting in a $60 billion investor loss in Terra-LUNA stablecoin.
• After evidence and closing arguments, preliminary jury instructions will be replaced with detailed ones.

The U.S. Securities and Exchange Commission (SEC) lawsuit against Terraform Labs (Terra) and its co-founder, Do Kwon, is nearing its conclusion as the jury trial approaches its final stages. As reported by Reuters on April 5, closing arguments from the legal representatives of Terraform Labs and Do Kwon will be presented this Friday. 

The trial’s main points are allegations that Terraform and Kwon engaged in fraudulent activities. Thus, SEC claims that these dealings ultimately led to the collapse of their stablecoin, causing investors to lose $60 billion Terra-LUNA in 2022.

Throughout the proceedings, both sides have presented their respective evidence and arguments, aiming to sway the jury’s decision. As the trial draws to a close, these closing statements will provide one last opportunity for each party to summarize their case and persuade the jury.

The U.S. Securities and Exchange Commission (SEC) labeled accusations of deceit against the Singapore-based company and its co-founder, Kwon. SEC claims that Terra-USD’s boss deceived investors regarding the stability of TerraUSD, a stablecoin intended to maintain a value of $1. The commission has also accused the company of falsely asserting that Terraform blockchain’s integration into a Korean mobile payment app called Chai.

During the trial that began on March 25, attorneys representing Terraform and Kwon contended that the SEC misinterpreted statements and relied on witnesses incentivized by potential whistleblower rewards. The regulator actively seeks civil financial penalties and industry bans against Kwon and Terraform.

Kwon was apprehended in Montenegro in March 2023 and remained absent from the trial. However, the U.S. and South Korea, Kwon’s home country, have pursued his extradition on criminal charges. The co-founder was the brain behind the design of TerraUSD and Luna, a token tied to the TerraUSD.

The U.S. Securities and Exchange Commission estimates investor losses at more than $40 billion across both tokens. This loss occurred when TerraUSD failed to maintain its $1 peg in May 2022. 

As a result, several cryptocurrencies, including Bitcoin, witnessed a downtrend. This downward pressure expanded into the broader crypto market, resulting in multiple company bankruptcies in 2022.

According to the SEC, Kwon and Terraform Labs partnered with a third party to move significant quantities of TerraUSD to pump its price when the stablecoin dipped from its $1 peg in May 2021. Kwon purportedly attributed the rebound to TerraUSD’s algorithmic reliability, per the regulator’s assertions.

Furthermore, the SEC alleged that Kwon and Terraform misrepresented Terraform’s blockchain as the underlying technology facilitating transactions between consumers and merchants on the Chai payment app.

In the ongoing trial legal proceedings, Judge Rakoff briefed the jury on the case brought forth by SEC against Terraform Labs and Do Kwon. Following the conclusion of all evidence and closing arguments from both sides, the initial preliminary instructions given to the jury will be replaced by more detailed instructions.

During the trial, Brian Curran, Terraform Labs’ former head of communications, took the stand as a witness against the company. The former Terraform insider revealed insights into its alleged deceptive activities by the company and his former boss.