In the ongoing legal battle between Terraform Labs, its co-founder Do Kwon, and the U.S. Securities and Exchange Commission (SEC), a new development has emerged. A federal judge has approved a protective order that ensures confidentiality of certain documents leading up to their trial.
The court documents, dated Dec. 20 and filed in the U.S. District Court for the Southern District of New York, reveal that Judge Jed Rakoff has sanctioned an agreement between the SEC and Terraform Labs. This agreement, reached on Dec. 18, mandates that most discovery materials marked confidential will not be disclosed publicly. Furthermore, the court will seal these documents before the commencement of the trial. Judge Rakoff noted that it is “unlikely” that he will entertain any requests to unseal these documents later.
While the judge’s order did not explicitly state the reasons for this confidentiality, it was established that there was “good cause” for such a measure. This decision comes while Do Kwon, Terraform Labs’ co-founder, is detained in Montenegro, facing potential extradition to either the U.S. or South Korea.
This legal scenario follows the high-profile collapse of Terraform Labs, particularly after its stablecoin TerraUSD (UST) lost its peg to the U.S. dollar. This event is believed to have contributed significantly to the cryptocurrency market’s downturn in 2022. In February, the SEC accused Terraform Labs and Kwon of conducting a “multi-billion dollar crypto asset securities fraud,” involving the sale of unregistered securities.
The outcome of the SEC vs. Terraform Labs case is expected to set a precedent for the crypto industry, affecting numerous companies. Earlier in August, a court allowed Terra to subpoena FTX entities in relation to FTX’s bankruptcy proceedings. Additionally, in November, Jump Crypto Holdings submitted confidential materials for discovery in this case.
The SEC’s approach towards cryptocurrency firms in the U.S. has faced criticism, particularly for what is perceived as a “regulation by enforcement” strategy. The commission is currently engaged in legal actions against several major crypto players, including Binance, Kraken, Ripple, and Coinbase, reflecting the growing scrutiny of the crypto sector by regulatory authorities.