DEFIREGULATION

Terra's Counter-Suit Against the SEC Fails, Opening the Door to Collapse Investigation? Do Kwon Claims No Intention to Increase Anchor's Interest Rate Fivefold

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Terra

Terraform Labs previously failed in its lawsuit against the SEC, and TFL must now comply with the SEC's investigation into its Mirror protocol, which also opens the door for the SEC's investigation into the Terra collapse incident. Meanwhile, Do Kwon has refuted community accusations that he deployed addresses to claim a large amount of new LUNA airdrops and insisted on increasing Anchor's interest rates fivefold before its launch.

Terraform Labs' Counterattack against SEC Rejected

In the earliest reports last year's third quarter, Terra was said to be under investigation by the SEC. According to documents at the time, the SEC had been investigating its synthetic asset protocol, Mirror Protocol, involving equity tokens since May of last year.

Terraform Labs (TFL) believes that the SEC violated the confidentiality of the investigation process by hiring a third party to serve a subpoena in a public setting during the Messari summit, which amounted to public intimidation and violated the principle of confidentiality of formal investigation orders. Consequently, TFL filed a lawsuit against the SEC.

However, the Second Circuit Court of Appeals rejected TFL's appeal against the SEC on June 8, indicating that TFL must comply with the SEC's investigation, further aiding the SEC in opening the door to investigate the Terra collapse.

The court noted that TFL had specific purposes and extensive contact with U.S. users, such as marketing to U.S. investors, hiring U.S. employees, and signing contracts with U.S. entities to ensure that the Korean headquarters would not be held accountable by the U.S.

The SEC also released a public statement regarding the investigation results here.

Why is it Difficult to Investigate Terra?

Lawyer Philip Moustakis told The Block that he does not understand why the SEC and CFTC cannot conduct a more in-depth investigation into UST, LUNA, and other stablecoin issuers, and believes that the two regulatory agencies should coordinate on this matter.

David Shargel, a partner at Bracewell law firm, pointed out that there seems to be legal complexity among different business entities, particularly with the emergence of Luna Foundation Guard (LFG), making matters even more complicated. LFG is registered in Singapore as a non-profit organization, and Singapore has a very opaque company registration and court record access system.

Bloomberg also cited anonymous sources stating that the SEC has begun investigating the Terra collapse.

Whistleblower FatMan Continues to Release Explosive Information

Anonymous Twitter user FatMan has been continuously releasing a series of revelations regarding Terra, despite the launch of Terra 2.0. Some of the information includes:

  1. Before the launch of 2.0, TFL had already deployed multiple wallets to claim a $200 million LUNA airdrop and further manipulate governance.
  2. Before the Terra collapse, $80 million was cashed out monthly, flagged by the SEC for money laundering, as reported by Korean media.
  3. The Anchor developer initially researched a security rate of 3.6%, but founder Do Kwon raised it to 20% before the protocol launch, ignoring the possibility of collapse and threatening to dismiss developers, as also reported by Korean media.
  4. The Seoul police are currently investigating an internal employee theft case at TFL in May last year, involving the alleged misappropriation of the company's internal Bitcoin assets. FatMan specifically emphasizes that Do Kwon's claim that LFG funds are controlled by a multi-signature of seven directors is a complete lie.

Do Kwon's Response to the Revelations

In response to the aforementioned revelations, Do Kwon seems to specifically address points 1 and 3.

The Anchor code is open-source. He urges the media to verify whether these developers and "experts" have ever contributed code on GitHub, stating that reviewing the Terra and Anchor code will reveal the truth.

TFL did not claim the airdrop. He emphasizes that while TFL plans to continue building Terra 2.0, it has not attempted to dominate or deliberately avoid the airdrop, and all decisions will be community-driven, albeit potentially unstable.

FatMan's Counter-Rebuttal

FatMan once again rebuts Do Kwon's claims, believing that he is treating Terra supporters as fools. Do Kwon seeks to prove that the developers contacted by the media are not genuine Anchor developers through code. However, FatMan emphasizes that the developers mentioned in the report are researchers of economic models, distinguishing them from the eventual code developers.

FatMan also references Terra's founding member Nicholas Platias, who wrote a stress test paper on Terra in May 2019, mentioning the obvious long-term macro trends and short-term volatility pressures in Terra's peg.

Do Kwon has 1.03 million Twitter followers, but recently changed his privacy settings to only allow replies from those he tags in his tweets.