Terraform Labs is asking a court to allow it to subpoena certain information about accounts, wallets and assets from bankrupt exchange FTX to defend itself in a case brought by the Securities and Exchange Commission.
The SEC charged Terraform and its former CEO Do Kwon in February for allegedly misleading investors over its algorithmic stablecoin TerraUSD, which collapsed dramatically last year, wiping out billions in the process.
Lawyers representing Terraform said a “coordinated short attack” caused the stablecoin to falter and that those sellers likely used FTX to, in part, to conduct that attack, in a motion filed on Wednesday in the U.S. Bankruptcy Court for the District of Delaware involving FTX.
“These records are crucial to TFL’s defense in the SEC Action—for example, for TFL’s experts to perform crucial blockchain analysis of the short-sellers’ trading and market activity to combat the SEC’s allegations, among other things,” the lawyers said.
Trouble at Terra
The SEC said the company and Kwon misled investors about how stable the stablecoin really was. Algorithmic stablecoins, like TerraUSD, use market incentives via algorithms to maintain a stable price. Terra was linked to Luna, a governance token, to keep the prices stable.
The SEC also said Terraform and Kwon misled investors when the stablecoin depegged previously in May 2021 and they said it was restored by an algorithm. Instead, the firm turned to Jump Trading to prop up the stabecoin, restoring its value.
In the motion filed this week, Terraform said Jump “was not the cause for the restoration of the peg in 2021.”
Terraform's former CEO is also facing legal trouble. Kwon was found guilty last month by a court in Montenegro of using a fake Costa Rican passport in an attempt to leave the country in March and sentenced to four months in jail.
A hearing on the motion is set for 10 a.m. on Aug 2.
Disclaimer: The former CEO and majority shareholder of The Block has disclosed a series of loans from former FTX and Alameda founder Sam Bankman-Fried.
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