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Terraform Labs, the company behind the LUNA digital currency, has filed a motion with a New York court in an ongoing litigation with the US Securities and Exchange Commission (SEC). In its petition, the company claims that the regulator violated the procedure by forcing its lawyers to serve a subpoena to the founder of Terraform when he came to the United States to speak at a digital currency event.
At the center of the battle is the Mirror Protocol, a platform built on the Terra blockchain that allows users to trade synthetic assets tied to real stocks. Users can create and trade these so-called mirror assets that track popular stocks like Apple, Google, and Amazon.
This concept is not new: Binance pioneered it even before the launch of the Mirror Protocol. However, as Binance has learned from its own experience, regulators are not very good at such platforms. This was one of the main reasons Binance experienced its worst year in terms of regulatory repression, when supervisors such as Germany’s BaFin ordered it to shut down the exchange trading platform.
The Mirror Protocol got interested in the US Securities and Exchange Commission earlier this year. However, at that time, its jurisdiction was very limited. Terraform Labs is based in Singapore and its founder, Do Kwon, is a South Korean resident also in Singapore. The only thing the SEC could do was contact Kwon and ask him for voluntary cooperation, which she did. Kwon’s lawyers said he spent quite a bit of time voluntarily providing information on the Mirror Protocol, including one five-hour video call.
On September 20, Kwon came to the United States to attend and speak at the Mainnet conference in New York. The SEC took advantage of this and served him a subpoena right before he took the stage. According to Kwon, he learned that he had been handed a summons later, when he got acquainted with the papers that had been handed to him earlier.
The subpoena requires Kwon to hand over several documents related to the Mirror Protocol, explain his role in the project, disclose his ownership of MIR (which is the platform’s token manager), and personally report to Washington, where the SEC is located, to answer some questions.
In a statement filed December 17 with the Southern District of New York, Kwon claims the SEC violated its procedures by serving him a subpoena in this way. In addition, he claims that the Commission has no jurisdiction over him or his company.
However, in the past, the SEC has argued that because the Mirror Protocol serves American users, the Commission has the necessary jurisdiction. And since Do Kwon was in New York when the subpoena was handed to him, the regulator claims to have not violated any procedure.
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