Crypto founder Do Kwon — who’s under active investigation by US regulators — is now suing the Securities and Exchange Commission (SEC).
Terraform Labs chief Kwon claims that service of legal paperwork at a crypto conference in New York City violated his due process rights and the SEC’s own rules.
As part of the related investigation, Kwon has already produced documents, completed five hours of live testimony, and is demanded to testify again in Washington DC.
Kwon is responsible for crypto tokens Mirror Protocol (MIR) and Terra (LUNA), as well as a multitude of algorithmic stablecoins tied to LUNA.
Kwon was in the city for Mainnet 2021, a conference with a couple thousand attendees. While exiting an escalator, a process server handed him paperwork from the SEC.
According to Kwon’s legal council, “the subpoenas were issued and served in violation of the Administrative Procedure Act and the SEC’s Rules of Practice” and are “null, void, and with no force or effect, and in particular were not effective in securing jurisdiction over [Terraform Labs] or [Kwon].
Several attendees witnessed the incident, including Indiegogo founder Slava Rubin.
Messari head Ryan Selkis criticized the server: “We have invited congressional staffers and regulators to this event, we would have comped many of their passes, and they choose to hide by the escalators instead of learning about what’s actually going on in the industry.”
Kwon offers crypto securities, says the SEC
The SEC claims that Terraform Labs’ Mirror Protocol is operating an unregistered securities exchange in the United States. Americans have readily accessed it and purchased MIR, LUNA, and Kwon’s other tokens.
Terraform Labs developed Mirror Protocol as a platform on which people can mint and trade tokens that “mirror” the price of stocks.
Synthetic stocks and derivatives tied to the performance of a publicly-reporting equity — crypto-powered or otherwise — are definitely assets the SEC is mandated to monitor.
When Terraform Labs launched Mirror Protocol, lead brain Kwon called it, “a way for retail investors worldwide to more easily participate in the US equities market.”
Terraform Labs is best known for its algorithmic stablecoin UST, which it pegs to the US dollar by burning its speculative token LUNA.
The SEC has been investigating Kwon since at least May 2021.
How to ‘serve’ someone
In order to sue someone, the SEC must serve the defendant personally. An authorized courier must deliver documents related to the case, such as a complaint, summons, or subpoena.
Service is a legal requirement of the US court system to ensure that defendants actually receive paperwork informing them of their rights and responsibilities.
A process server’s duties include providing proof that a party in a legal case is properly served with complete documentation.
- Process servers generally have to follow strict rules on serving documents that vary slightly by jurisdiction.
- A case may be delayed or dismissed if a party in the case can establish that certain rules were not properly followed.
- The SEC hired a private process server company, Cavalier Courier & Process Service, an employee of which served Kwon.
According to the lawsuit filed by Kwon last Friday, the SEC allegedly violated the Due Process clause of the 14th Amendment to the US Constitution, the Securities Exchange Act of 1934, and the Administrative Procedure Act, its own Rules of Practice, and failed to keep its investigation into Mirror Protocol confidential.
Kwon claims server meant to ‘intimidate and embarrass’
Kwon and Terraform Labs are attempting to claim that the SEC does not have proper jurisdiction, since Kwon lives in Korea and his crypto firm is based in Singapore.
Kwon says the actions of the SEC and Cavalier Courier & Process Service were “at worst, an intentionally brazen display meant to publicly intimidate and embarrass, and at best reckless.”
On September 15, 2021, SEC attorneys advised Kwon’s lawyers that an enforcement action was warranted against Terraform Labs due to its servicing of US residents.
Investors backing Terraform include Coinbase Ventures, Galaxy Digital, Arrington XRP Capital, Pantera Capital, and Polychain Capital.
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