Manhattan US District Court Judge Jed S. Rakoff has given a major blow to Terraform Labs and its founder Do Kwon.
Recently, Judge Rakoff dismissed a mistrial bid that was reportedly related to disclosures regarding the Terraform’s alleged deception.
The notable decision was announced during the current trial and against the backdrop of a massive fraud lawsuit that was filed by the US Securities and Exchange Commission (SEC).
Judge Rakoff officially dismissed the mistrial bid, while noting:
“This is a case about lying.”
The defense’s efforts/attempt to challenge the ongoing court proceedings were not effective, as arguments unfolded outside the presence of the jury.
The SEC has alleged that Terraform was intentionally misleading unsuspecting investors by promoting its fraudulent crypto project, UST. This so-called UST token was described as being “stable” but the concerned parties failed to disclose major risks.
In addition, the SEC has stated that Terraform knowingly and intentionally misrepresented the use of its LUNA crypto tokens, especially when it came to enabling transactions via a digital commerce app offered in South Korea.
Tensions escalated as the Judge began to seriously question Terraform supporters, which ended up uncovering key insights into this controversial project.
An investor in the initiative said they were shocked/surprised that the firm would deceive investors to this extent.
Do Kwon’s legal team said they were concerned about the presiding Judge’s way of questioning.
But the Judge said that they were trying to keep the jury focused during a trial that included “irrelevancies” and even “smokescreens.”
As the court proceedings went on, a key case witness, ex- Chai executive Aaron Myung, also proceeded to take the stand.
Their testimony provided further insights regarding the so-called discrepancies in Terraform Labs’ business operations. This could have made the defense’s approach more questionable.
Do Kwon is represented by a team from Kaplan Hecker & Fink LLP.
Terraform Labs’ defense, which is reportedly being led by Dentons, will now aim to address the SEC’s assertions/allegations.
Now that the mistrial bid has been denied, the current case moves forward and could unveil new information.
According to industry participants, Terraform Labs and its founder Do Kwon created a so-called “house of cards” and intentionally lied to investors regarding the overall stability of a crypto/algorithmic stablecoin whose demise severely disrupted markets in 2022. This, according to a lawyer for the U.S. Securities and Exchange Commission who shared these statements with a Manhattan jury as its civil fraud trial commenced earlier this week (on Monday).
As widely reported, the SEC has alleged that Kwon and the Singapore-headquartered blockchain firm had misled investors in 2021 regarding the stability of TerraUSD, a stablecoin supposed to maintain a value of $1. The regulatory authority also alleged that the parties had inacurrately/falsely stated that Terraform’s blockchain had been used in a South Korean mobile payment app.
Interestingly, Kwon’s lawyer David Patton stated that the crypto professional had never represented Terra’s crypto as risk-free.
He added that failure “doesn’t equal fraud.”
Kwon is not attending the trial, which may go on for about 2 weeks. Kwon had been taken into police custody in Montenegro in March of last year and is presently awaiting extradition to South Korea, where he will have to deal with serious criminal charges.
A Montenegro court stated this past Friday that Kwon’s extradition had been postponed after the prosecutor’s office there expressed certain concerns/issues with the process.
Federal prosecutors in New York have charged Kwon with engaging in fraud and are demanding his extradition to the US.
Kwon had reportedly helped with designing TerraUSD and Luna, a crypto token that fluctuated in value however it was said to not be too closely linked or associated with TerraUSD.
The SEC has said that investors lost over $40 billion on the two crypto tokens at the time when the TerraUSD peg to the US dollar was not maintained, starting back in May of 2022.
Their demise led to the fall in prices of other virtual currencies such as Bitcoin and led to a lot of chaos across the already volatile cryptocurrency ecosystem, eventually resulting in many firms filing for bankruptcy back in 2022 (a truly unprecedented year for crypto which came right after the massive bull market of 2021).