SEC Subpoenaed Terra Founder Do Kwon at Mainnet 2021

Court filings from the Southern District of New York show that the US Securities and Exchange Commission (SEC) served Terra founder Do Kwon during the Mainnet Conference in September in New York City.

In response, Kwon is suing the SEC for “two improperly issued subpoenas” and “failure to keep confidential an investigation into the Mirror Protocol,” according to filings issued Friday.

The Mirror Protocol

The Mirror Protocol is a decentralized finance (DeFi) protocol powered by smart contracts that creates synthetic assets on the Terra blockchain. These synthetic assets mirror real-world assets and include mTSLA, mGOOGL (from Alphabet Inc.), mNFLX, and Apple, Microsoft, and Alibaba.

Called mAssets, synthetic stocks give Terra token-holders exposure to real-world price action without having to own or transact in fiat currencies.

Tokenized stocks are traded on digital asset exchanges, including FTX. They have caught the attention of regulators around the world. 

Regulatory environment 

Speculation that the person served at the conference was a foreign national, given that it is easiest to serve individuals on US soil, swirled in the weeks following the event. The SEC did not confirm or deny the fact that a subpoena was served when Blockworks filed a Freedom of Information Act request in late September. 

When serving foreign nationals, government officials more commonly opt to go through attorneys, but this is not always the case. Serving a subpoena directly, especially in a public place surrounded by members of an industry that the SEC is knowingly going after, may have been a way to set an example, Daniel Payne, fintech and blockchain attorney at Murphy and McGonigle said in September. 

The filing comes amid a series of regulatory actions against the cryptocurrency community in recent weeks.

The New York Attorney General announced earlier this month that it would be requiring two companies to halt operations within the state. The released letters sent to the companies, Nexo and Celcius, cite concerns with traded securities and request more information about practices. 

The US Department of Justice announced the creation of the National Cryptocurrency Enforcement Team to take over investigations and prosecutions of criminal activities associated with digital assets earlier this month. 

The SEC has not publicly responded to the lawsuit or provided any information into an investigation against Do Kwon.