Recently, Terraform Labs secured a significant legal victory as a federal judge granted them subpoena authority over FTX. Terraform Labs, known for issuing the Terra algorithmic stablecoin and Luna governance token, maintains that a coordinated short-selling effort on FTX led to a major crash in May 2022. With the conviction that the collapsed exchange holds essential information to support their defense against the SEC‘s enforcement action, Terraform Labs aims to make strategic use of the granted subpoena power.
Terraform Labs Gains Subpoena Power over FTX
A federal judge, Judge John Dorsey, has allowed Terraform Labs to issue a subpoena to the bankrupt crypto giant, in pursuit of relevant information for its defense against the SEC’s allegations. Terraform claims that FTX’s massive short-selling of its tokens played a significant role in the crash of the Terra ecosystem. This information could be crucial in disproving the SEC’s accusations and vindicating Terraform and its founder, Do Kwon.
FTX’s attorneys, who also represent their branch in the US, have consented to the order, albeit with certain limitations. Typically, companies under bankruptcy protection are shielded from additional legal actions, but FTX agreed to provide the requested records as long as they are limited to Terraform’s defense against the SEC’s case.
Information Sought and Implications
The subpoena seeks records from FTX related to wallets, accounts, and assets used for trading on its platforms, as well as information about large volumes of sales or offers involving cryptocurrencies developed by Terraform Labs. Additionally, the request includes details about wallets and trading accounts used by Jump Trading through FTX for trading UST or Luna between May 1, 2021, and May 31, 2022. Moreover, any other account and wallet information used by short-sellers of UST/Luna during that period is also subject to Terra’s request.
The SEC has accused Terraform of colluding with Jump Trading to manipulate UST’s value before the ecosystem’s crash, but Terraform denies these allegations. The subpoena aims to gather evidence to counter this specific part of the SEC’s case against Terraform and its founder.
The granting of subpoena power to Terraform Labs over FTX marks a significant step in the legal battle between Terra and the SEC. With the potential to obtain crucial information regarding the alleged short-selling manipulation, this development could significantly impact the outcome of the case. Investors and the cryptocurrency community will closely monitor further developments as this complex legal saga unfolds. Additionally, the ongoing legal issues faced by Terraform Labs’ former CEO, Do Kwon, add further intrigue to this high-stakes situation.