Illustration shows Terra logo and U.S. dollars
Terraform Labs accused the SEC of "government overreach" in the regulator's recent move of asking the court to not allow the Do Kwon-founded crypto firm to hire law firm Dentons. Reuters

KEY POINTS

  • Terraform said the SEC's move was a 'troubling example' of how governments act beyond their authority
  • The SEC previously asked the court to block Terraform from employing Dentons in the case
  • Terraform and its co-founder are accused of committing fraud by misleading investors

Fallen blockchain protocol and payments platform Terraform Labs has called out the U.S. Securities and Exchange Commission (SEC) for its supposed "overreach" in its bid to block the cryptocurrency firm from hiring law firm Dentons for its legal battle against the regulator.

The SEC, which charged Terraform and its co-founder Do Kwon with "orchestrating a multi-billion dollar crypto asset securities fraud," filed what the company called "a vehement objection to the Debtor's spending its own funds to ensure an adequate defense," and "a troubling example of government overreach," Terraform said in a Tuesday filing.

"The SEC's objection, framed as a creditor concern, is a pretext for its true motive: to disadvantage and distract an adversary on the eve of trial," the protocol added. It said the regulator was implementing an "unprincipled strategy" against Terraform, asking the court to "reject this brazen attempt" to "gain a litigation advantage."

Terraform's latest move comes less than a week after the SEC questioned "suspicious" payments made by the crypto company to Dentons, coming in at $166 million. The regulator said such a huge legal fee may have been sent to the law firm to avoid paying a future payment in the SEC's lawsuit filed against Terraform.

The SEC wants the court to block any of the millions in legal fees Terraform seeks for its legal battles, including some $3.25 million the crypto firm says will be used for the legal bills for its other employees implicated in relation to the collapse of Terraform ecosystem in May 2022.

The SEC filed a lawsuit against Terraform earlier last year, with the regulator's head Gary Gensler saying the company and Kwon "failed to provide the public with full, fair, and truthful disclosure as required for a host of crypto asset securities," adding that the defendants "committed fraud by repeating false and misleading statements to build trust before causing devastating losses for investors."

Terraform filed for bankruptcy in January, saying a Chapter 11 filing was necessary to enable the company's execution of its business plan while also resolving its mounting legal woes. It pledged to fulfill all financial obligations not just to its employees but also to the vendors through its bankruptcy case.

Meanwhile, the trial start date for SEC's case against Terraform and Kwon has been moved to March 25 from the initial Jan. 29 date. Before the trial start date was moved, Kwon's legal team sought for the SEC case trial to be adjourned, citing delays in his extradition process from Montenegro to the United States.

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