Terraform Labs and Do Kwon Ordered To Comply With SEC Subpoena

The latest legal setback for Do Kwon stems from an SEC investigation into TFL’s Mirror Protocol


Blockworks Exclusive Art by Axel Rangel


key takeaways

  • The ruling is unrelated to the collapse of TerraUSD
  • Do Kwon, who now lives in Singapore, had argued the SEC has no jurisdiction over him

Do Kwon, the infamous founder and CEO of Terraform Labs, is now fighting legal fires on multiple fronts. 

The company and its founder may have legal liability in the wake of the failure of stablecoin TerraUSD (UST) last month. A US federal judge has ordered Kwon to comply with an earlier SEC subpoena that he sought to avoid.

The SEC began investigating a Terraform Labs project, Mirror Protocol, last year and served Kwon a subpoena at a New York conference on Sept. 20, 2021, court filings show.

Mirror, a decentralized finance (DeFi) protocol on the Terra blockchain, enabled users to mint synthetic assets that mirror the price of securities such as TSLA and GOOGL, using UST as collateral. Since the UST depeg, the project has been in disarray, unable to operate as designed, absent a functioning stablecoin. Mirror’s governance has also been unable to reach a quorum on proposals, and its developers remain quiet.

Kwon initially denied he had been served at all, but when the truth came out, he took the bold step of suing the SEC — his attorneys argued the service was improper.

A district court concluded the SEC complied with its rules, and that the agency has sufficient jurisdiction. The 2nd US Circuit Court of Appeals upheld that ruling on Wednesday, rejecting Terraform Labs (TFL) and Kwon’s appeal.

Kwon’s legal counsel told the court that Kwon had never authorized said counsel to receive subpoenas, rendering the agency’s argument moot.

“Appellants’ reading of the Rules is contrary to the text and would produce absurd results by allowing a party to insist on service through counsel, but allow the party to block said service by not authorizing their counsel to receive any filings,” the appeals court wrote in its decision.

The district court also concluded it had personal jurisdiction over TFL and Kwon, citing seven criteria linking their actions to the US. Notably, the court ruled TFL promoted the protocol’s tokens to US-based consumers and investors, retained US employees and even paid an unnamed exchange $200,000 to list the tokens for trading.

“Appellants’ arguments to the contrary are unpersuasive,” the court wrote.

The ruling specifically does not address whether Terra’s digital assets are securities under US law.

Mirror Protocol has yet to announce whether it will relaunch on the new incarnation of the Terra mainnet, which went live on May 27, 2022, following a community vote.

Mirror’s token MIR is down over 98% from an all-time high in May 2021, trading at $0.24 as of 12:15 pm ET, according to CoinGecko.

TFL representatives did not immediately return a request for comment.

Start your day with top crypto insights from David Canellis and Katherine Ross. Subscribe to the Empire newsletter.

Explore the growing intersection between crypto, macroeconomics, policy and finance with Ben Strack, Casey Wagner and Felix Jauvin. Subscribe to the On the Margin newsletter.

The Lightspeed newsletter is all things Solana, in your inbox, every day. Subscribe to daily Solana news from Jack Kubinec and Jeff Albus.


Upcoming Events

Salt Lake City, UT

MON - TUES, OCT. 7 - 8, 2024

Blockworks and Bankless in collaboration with buidlbox are excited to announce the second installment of the Permissionless Hackathon – taking place October 7-8 in Salt Lake City, Utah. We’ve partnered with buidlbox to bring together the brightest minds in crypto for […]

Salt Lake City, UT

WED - FRI, OCTOBER 9 - 11, 2024

Pack your bags, anon — we’re heading west! Join us in the beautiful Salt Lake City for the third installment of Permissionless. Come for the alpha, stay for the fresh air. Permissionless III promises unforgettable panels, killer networking opportunities, and mountains […]

recent research

Unlocked by Template.png


With the spot ETH ETF approval, the institutions are coming. stETH - given its dominance in marketshare, existing liquid market structures, and highly desirable properties - is poised for institutions.


Launching cryptocurrencies the old fashioned way may soon make a return


Kraken and CertiK brought their beef to social media after Kraken said researchers exploited $3 million through a bug


NVIDIA’s historic run is only deepening the divide between mega-cap tech stocks and the rest of the market.


EIP-7702 was quickly adopted for the next Ethereum upgrade, but developers haven’t quite locked it down