Terraform Labs is seeking a judge's permission to subpoena data from bankrupt crypto exchange FTX, claiming the information could help its defense against a lawsuit filed by the United States Securities and Exchange Commission (SEC) in February, a court filing shows.
In a search for evidence that could support their defense of the fraud charges, lawyers for Terraform filed a motion on July 19 in the FTX bankruptcy case to access the company's information about digital wallets used by short sellers between March 2022 and May 2022. Terraform claims its stablecoin failure was the result of a coordinated attack by short sellers, possibly involving Alameda Research, FTX's sister company.
"To establish these defenses, TFL needs debtors' records about wallets, accounts, and assets used to transact on exchanges and FTX International and US sales/offers of large volumes of TFL-developed cryptocurrency, if any, by FTX Trading and West Realm Shires Services Inc. d/b/a FTX US."
On February 16, the SEC filed a lawsuit against Terraform Labs and its founder, Do Kwon, for allegedly โorchestrating a multi-billion dollar crypto asset securities fraud.โ According to the regulator, Terraform was offering unrecorded securities in a trade via its failed algorithmic stablecoin, TerraUSD (UST), and the Terra Luna (LUNA) token. Terraform's failure in 2022 resulted in a loss of over $40 billion from crypto markets.
The motion also requested information about the wallets used by Jump Trading, which the SEC accused of collaborating with Terraform in manipulating the price of the UST stablecoin. jump operations has been sued in Illinois on similar grounds for allegedly purchasing millions of UST tokens in 2021 as part of a deal with Terraform to restore the stablecoin's peg to $1.
โDefendants misrepresented UST's recovery by claiming that the algorithm was able to restore and maintain the fixed price. According to the SEC, UST instead regained its fixed price because Defendants settled with a US trading company, Jump Trading, [...] to purchase substantial amounts of UST to support the price," the court filing read.
Terraform is also seeking to dismiss a parallel class action lawsuit in California, arguing that since it is headquartered in Singapore, the referenced US securities laws are not applicable to its foreign-developed protocols.
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