Shalini Nagarajan

Marathon Digital on Wednesday disclosed the receipt of a new subpoena from the Securities &amp; Exchange Commission, directly tied to an ongoing investigation into its Montana-based data center.&nbsp;



The investigation revolves around potential violations of securities laws.



It comes after the crypto miner and some executives were previously issued a related subpoena in the quarter ended Sept. 30, 2021 to produce documents and communications concerning the facility in Hardin, Montana.



On Oct 6, 2020, <a href="https://blockworks.co/tag/marathon-digital" target="_blank" rel="noreferrer noopener">Marathon</a> entered into a series of agreements with multiple parties to design and build a data center for up to 100-megawatts in Hardin.



Notably, Marathon&#8217;s ambitious plans for a 100-megawatt data center in Hardin were set into motion through a series of agreements with multiple parties on October 6, 2020.



This latest subpoena was issued on April 10.



“We understand that the SEC may be investigating whether or not there may have been any violations of the federal securities law. We are cooperating with the SEC,” Marathon said in a <a href="https://www.sec.gov/ix?doc=/Archives/edgar/data/0001507605/000149315223016184/form10-q.htm" target="_blank" rel="noreferrer noopener">filing</a> dated May 10.



In February, Marathon <a href="https://blockworks.co/news/marathon-digital-earnings-sec">postponed its fourth-quarter earnings</a> release after the SEC raised concerns about accounting errors. The agency’s corporation finance staff identified inaccuracies in the company’s figures, prompting Marathon to recast certain financial information.



The concerns raised were related to two specific areas: the calculation of impairment of digital assets and the determination of revenue from contracts with customers.



The connection between the latest subpoena issued and Marathon’s postponed quarterly earnings release remains unclear at this time. A Marathon spokesperson told Blockworks the SEC demand was &#8220;a follow up to the subpoena issued in 2021,&#8221; but declined to comment other than to say they are cooperating with the agency.



Marathon’s disclosure was made in its first-quarter earnings reported, where it revealed a net loss of $7.2 million or $0.05 per share, an improvement compared to a net loss of $12.9 million or $0.12 per share in the previous year.



The company generated revenue of $51.1 million in the quarter, slightly lower than the $51.6 million revenue reported last year.



<a href="https://blockworks.co/price/btc" target="_blank" rel="noreferrer noopener">Bitcoin</a> production experienced a significant increase, reaching 2,195 bitcoins in the quarter, a 74% rise annually. However, the impact of lower bitcoin prices in the current year offset some of these gains. Marathon’s stock last traded at $10.22 in Thursday’s pre-market, and are up 28.3% in the last month, TradingView data <a href="https://www.tradingview.com/symbols/NASDAQ-MARA/" target="_blank" rel="noreferrer noopener">shows</a>.



Update May 11, 10:03 am ET: Added comment from Marathon



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Marathon Hit with SEC Subpoena in Montana Data Center Probe

<div id="highlights-block_634e733b10367" class="highlights">
 <ul>
 <li>Co-founders’ Singapore counsel refused to accept papers on behalf of clients, motion states</li>
 <li>Fund’s investment managers have produced only “piecemeal, selective disclosures”</li>
 </ul>
 
</div>



Teneo, the foreign representative of insolvent crypto hedge fund Three Arrows Capital (3AC), has asked for authorization to serve subpoenas for the production of documents and testimony of co-founders Su Zhu and Kyle Davies through unconventional methods, given that they are “yet to offer any forthright cooperation.”



In <a href="https://reorg-research.com//pdf/4083802.pdf" target="_blank" rel="noreferrer noopener">a motion</a> filed on Oct. 14, they asked a US judge to authorize the issue of subpoenas via the founders’ Twitter pages, their email addresses and the email address of Advocatus Law — the Singapore-based counsel “purporting to represent the founders.”



3AC is <a href="https://cms.blockworks.co/3ac-files-for-bankruptcy-as-co-founders-location-unknown/" target="_blank" rel="noreferrer noopener">seeking protection from creditors</a> in the Southern District of New York under Chapter 15, a process that allows foreign debtors to shield assets in the US.&nbsp;



Earlier court documents allege both Zhu and Davies <a href="https://cms.blockworks.co/3ac-co-founders-remain-silent-creditors-go-to-court/" target="_blank" rel="noreferrer noopener">have been uncooperative</a> with liquidators. And as per the latest development, they still seem to be unwilling to engage.



<h3 class="wp-block-heading">Su Zhu and Kyle Davies non-public locations muddle liquidation process</h3>



Since their whereabouts “remain unknown,” the filing stated, foreign representatives requested Advocatus to accept the papers. But the law firm declined to accept service on behalf of its clients.&nbsp;



Advocatus also previously denied Teneo’s requests for an urgent meeting with the founders. While they did offer an introductory Zoom call, neither Zhu nor Davies spoke despite being asked direct questions, Friday’s motion said.&nbsp;



They have refused to cooperate with the liquidators’ efforts to access 3AC’s books and records in their possession, providing only “meager information” that represents an incomplete list of assets and selective disclosures, the filing added.



If granted, the subpoenas would require 3AC’s founders to produce documents to “identify the existence of, location of, and method of accessing and controlling” company assets.



The foreign representatives have also requested <a href="https://www.solitairellp.com/" target="_blank" rel="noreferrer noopener">Solitaire</a>, the Singapore counsel “purporting to represent” 3AC’s former investment manager, for access to other critical information and believes the firm is withholding relevant valuable information.



“The Investment Managers’ piecemeal, selective disclosures are insufficient and their lack of forthright cooperation has hindered the Foreign Representatives’ ability to perform their duties,” the filing said.



Teneo representatives didn’t comment on the matter beyond the court filing. 3AC, Advocatus and Solitaire didn’t return Blockworks’ request for comment by press time.



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3AC Liquidators Want to Subpoena Su Zhu, Kyle Davies via Twitter

Macauley Peterson

<div id="highlights-block_62a22523db044" class="highlights">
 <ul>
 <li>The ruling is unrelated to the collapse of TerraUSD</li>
 <li>Do Kwon, who now lives in Singapore, had argued the SEC has no jurisdiction over him</li>
 </ul>
 
</div>



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



The company and its founder may have legal liability in the wake of the <a href="https://cms.blockworks.co/?s=terra" target="_blank" rel="noreferrer noopener">failure of stablecoin TerraUSD</a> (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 <a href="https://cms.blockworks.co/sec-subpoenaed-terra-founder-do-kwon-at-mainnet-2021/" target="_blank" rel="noreferrer noopener">served Kwon a subpoena</a> 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 <a href="https://cms.blockworks.co/terraform-labs-hits-back-at-sec-no-jurisdiction-over-do-kwon/" target="_blank" rel="noreferrer noopener">initially denied</a> 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&#8217;s argument moot.



<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">“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.</blockquote>



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, <a href="https://cms.blockworks.co/terras-forked-luna-token-falls-70-a-day-after-debut/" target="_blank" rel="noreferrer noopener">which went live</a> on May 27, 2022, <a href="https://cms.blockworks.co/new-luna-launch-unveiled/" target="_blank" rel="noreferrer noopener">following a community vote</a>.



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, <a href="https://www.coingecko.com/en/coins/mirror-protocol" target="_blank" rel="noreferrer noopener">according to CoinGecko</a>.



TFL representatives did not immediately return a request for comment.



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