Do Kwon, Terraform Labs Ask Court To Dismiss SEC's Securities Lawsuit

Controversial South Korean crypto mogul Kwon Do-hyung, popularly known as Do Kwon, and Terraform Labs (TFL), the blockchain firm he co-founded, have asked a court to dismiss the securities fraud lawsuit filed by the U.S. Securities and Exchange Commission (SEC) against them.

Lawyers of Kwon and Terraform Labs filed a motion for summary judgment with the U.S. District Court for the Southern District Of New York last week, arguing the financial regulator had failed to prove that TFL was selling securities or committing fraud.

They claimed the SEC could not provide evidence to support its claims in the lawsuit.

"Defendants bring this motion because there is no genuine dispute as to any material facts and they are entitled to summary judgment as a matter of law," the court filing read. "But after two years of investigation, the completion of a discovery period that resulted in the taking of more than 20 depositions, and the exchange of over two million pages of documents and data, the SEC is evidentiarily no closer to proving that the defendants did anything wrong."

Moreover, Kwon's lawyers argued the SEC was using an analysis made by an economics professor at Rutgers University as the basis for its lawsuit, which was "conceptually and methodologically flawed."

"But the most important reason that the SEC's depeg-related claims fail is that it has no admissible evidence that the trading firm's activities actually caused the repeg," the lawyers said. "The only evidence the SEC submits that seeks to prove that the 'actual' cause of the May 2021 repeg was the trading firm is the Mizrach report. But that report is so conceptually and methodologically flawed that it is inadmissible under Fed. R. Evid. 702, as demonstrated in the contemporaneously filed motion to strike Prof. Mizrach's opinions and the submissions by defendants' expert Terrence Hendershott."

The lawyers also claimed that "without Prof. Mizrach's opinions, the SEC has no evidence at all to support its claims regarding the May 2021 depeg, and those claims must be dismissed."

Kwon, who is serving his sentence in Montenegro for possession of fake travel documents, last month blamed market-making firm Citadel Securities for its alleged role in the spectacular collapse of Terra, which resulted in the loss of billions of dollars for investors.

Lawyers of Kwon and TFL pointed fingers at Citadel Securities for allegedly executing a "concerted, intentional effort" to cause TFL's so-called algorithmic stablecoin TerraUSD (UST) to depeg from the dollar in May 2022.

Citadel dismissed the accusation, calling TFL and Kwon's motion "frivolous."

"This frivolous motion is based on false social media posts and ignores information we already provided confirming we had no role whatsoever in this matter," a spokesperson for Citadel Securities to International Business Times.