Terraform Labs seeks access to FTX wallets to defend against fraud

Terraform Labs is seeking permission from a judge to subpoena data from bankrupt crypto exchange FTX, claiming the information could help it defend against a lawsuit filed in February by the US Securities and Exchange Commission (SEC), a lawsuit has found.

Seeking evidence that could support its defense against the fraud charges, Terraform’s lawyers filed a motion on July 19 in FTX’s bankruptcy case seeking access to the company’s information about digital wallets used by short sellers between March 2022 and May 2022. Terraform claims that the stablecoin’s failure was the result of a coordinated attack by short sellers, which may have included Alameda Research, an affiliate of FTX.

“To establish this hedge, TfL requires accounts receivable records on wallets, accounts and assets used for transactions on the FTX International and US exchanges and the sale/offering, if any, of substantial amounts of cryptocurrencies developed by TfL by FTX Trading and West Realm Shares Services Inc. d/b/a ftx us.”

On February 16, the SEC filed a lawsuit against TerraForm Labs and its founder, Doo Kwon, for allegedly “conspiracy to commit fraud involving multibillion-dollar crypto assets.” According to the regulator, Terraform offered unregistered securities in an operation through its failed algorithmic stablecoin, TerraUSD (UST) and Terra Luna (LUNA) token. The failure of Terraform in 2022 resulted in the loss of over $40 billion in crypto markets.

Screenshot of Terraform’s proposal requesting permission to subpoena the FTX information. Source: Krull

The motion also requested information on the wallets used by Jump Trading, which the SEC alleges cooperated with Terraform in manipulating the price of the UST stablecoin. Jump Trading has been sued on similar grounds in Illinois for allegedly buying millions of UST tokens in 2021 as part of a deal with Terraform to restore the stablecoin peg to $1.

“Defendants misrepresented the recovery of UST by claiming that the algorithm was able to restore and maintain price coupling. According to the SEC, UST instead reinstated its pricing because the defendants entered into an agreement with Jump Trading, a US trading company. […] to purchase significant quantities of UST to support the price,” the court read.

TerraForm is also seeking to dismiss a parallel class action lawsuit in California, arguing that since it is based in Singapore, the referenced US securities laws do not apply to protocols developed overseas.

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