SEC Pushes for Summary Judgment: Alleging Do Kwon and Terraform Sold Securities

by Tareq Sikder
  • In response, the defense team has asserted that the SEC has failed to prove that they were offering securities.
  • Kwon was arrested in March in Montenegro with forged documents.
Do Kwon, ceo of terraform labs
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The US Securities and Exchange Commission (SEC) has requested a summary judgment from a federal judge in its case against Kwon Do-Hyung (Do Kwon) and Terraform Labs, in a move aimed at avoiding a full trial. The SEC argued that there is "no genuine dispute as to any material fact" in the case, emphasizing that Do Kwon and Terraform sold securities.

SEC's Case against Terraform Labs and Do Kwon

The SEC's filing stated that there is no dispute regarding the fact that purchasers invested money in fiat currency or crypto assets. This assertion aligns with the regulator's argument that Do Kwon and Terraform Labs offered securities. The case is centered around whether the assets sold met the criteria of an investment contract under the Howey test, a legal assessment used to determine if a transaction is qualified as an investment contract and can be considered a security under US federal law.

The SEC contended that the pooling of money in a common enterprise with the expectation of profits primarily derived from the efforts of promoters satisfied the Howey test and justified a judgment in favor of the SEC.

The filing underscored that Terraform and Do Kwon, engaged in fraudulent conduct, made misleading statements. The filing alleged that both parties deceived investors about the stability of UST, attributed its price stabilization to their algorithm while secretly arranging third-party interventions, and omitted crucial information.

In response to the SEC's motion, Do Kwon's defense team has filed a similar document, asserting that the SEC has failed to prove that they were offering securities. Recently, Terraform's Co-Founder, Daniel Shin, on trial in South Korea, attributed Terraform Labs' downfall to Do Kwon's mismanagement. Shin claimed that he had distanced himself from the company and its activities two years before its collapse.

In May 2022, Terraform suffered a catastrophic collapse, resulting in significant losses for investors.

Do Kwon and Han's Arrest in Montenegro

Finance Magnates reported that Do Kwon found himself in legal trouble in Montenegro, where he was sentenced to four months in jail for being in the possession of forged passports and travel documents. Notably, Han Chong-Joon, the former Chief Financial Officer of the Singapore-based blockchain company, faced similar charges and received an identical sentence.

Do Kwon and Han were arrested in March in Montenegro while attempting to travel to Dubai via a private jet. The court revealed that fake Costa Rican and Belgian passports, along with falsified identity cards, were confiscated from the two executives.

This sentencing followed several weeks after the court initially set bail at €400,000 for each of the offenders, Do Kwon and Han. However, the bail granted in May was subsequently voided by an upper court, following an appeal by the prosecutor. The appeal was made on the grounds that the executives' property had not been adequately assessed.

According to Bloomberg, the duration of Do Kwon and Han's detention will be factored into their sentencing. Additionally, the court has granted them permission to appeal the verdict at a higher judicial court.

Do Kwon informed the court that he obtained the forged travel documents from an agency in Singapore, recommended to him by a friend. He further asserted that he was not aware that the documents were forged. Terraform Labs' CEO denied any knowledge of the fraudulent nature of the documents.

The US Securities and Exchange Commission (SEC) has requested a summary judgment from a federal judge in its case against Kwon Do-Hyung (Do Kwon) and Terraform Labs, in a move aimed at avoiding a full trial. The SEC argued that there is "no genuine dispute as to any material fact" in the case, emphasizing that Do Kwon and Terraform sold securities.

SEC's Case against Terraform Labs and Do Kwon

The SEC's filing stated that there is no dispute regarding the fact that purchasers invested money in fiat currency or crypto assets. This assertion aligns with the regulator's argument that Do Kwon and Terraform Labs offered securities. The case is centered around whether the assets sold met the criteria of an investment contract under the Howey test, a legal assessment used to determine if a transaction is qualified as an investment contract and can be considered a security under US federal law.

The SEC contended that the pooling of money in a common enterprise with the expectation of profits primarily derived from the efforts of promoters satisfied the Howey test and justified a judgment in favor of the SEC.

The filing underscored that Terraform and Do Kwon, engaged in fraudulent conduct, made misleading statements. The filing alleged that both parties deceived investors about the stability of UST, attributed its price stabilization to their algorithm while secretly arranging third-party interventions, and omitted crucial information.

In response to the SEC's motion, Do Kwon's defense team has filed a similar document, asserting that the SEC has failed to prove that they were offering securities. Recently, Terraform's Co-Founder, Daniel Shin, on trial in South Korea, attributed Terraform Labs' downfall to Do Kwon's mismanagement. Shin claimed that he had distanced himself from the company and its activities two years before its collapse.

In May 2022, Terraform suffered a catastrophic collapse, resulting in significant losses for investors.

Do Kwon and Han's Arrest in Montenegro

Finance Magnates reported that Do Kwon found himself in legal trouble in Montenegro, where he was sentenced to four months in jail for being in the possession of forged passports and travel documents. Notably, Han Chong-Joon, the former Chief Financial Officer of the Singapore-based blockchain company, faced similar charges and received an identical sentence.

Do Kwon and Han were arrested in March in Montenegro while attempting to travel to Dubai via a private jet. The court revealed that fake Costa Rican and Belgian passports, along with falsified identity cards, were confiscated from the two executives.

This sentencing followed several weeks after the court initially set bail at €400,000 for each of the offenders, Do Kwon and Han. However, the bail granted in May was subsequently voided by an upper court, following an appeal by the prosecutor. The appeal was made on the grounds that the executives' property had not been adequately assessed.

According to Bloomberg, the duration of Do Kwon and Han's detention will be factored into their sentencing. Additionally, the court has granted them permission to appeal the verdict at a higher judicial court.

Do Kwon informed the court that he obtained the forged travel documents from an agency in Singapore, recommended to him by a friend. He further asserted that he was not aware that the documents were forged. Terraform Labs' CEO denied any knowledge of the fraudulent nature of the documents.

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