SEC and Terraform Labs Court Filings to Stay Confidential Prior to Crypto Fraud Trial

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Trent Alan

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Trent Alan

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Trent has a background and education in journalism and communications, with two decades of experience editing and writing on a diverse array of topics. In recent years, however, he has shifted his...

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December 21, 2023 14:05 EST

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New details have come to the surface regarding the high-profile crypto fraud case between the United States Securities and Exchange Commission (SEC) and Terraform Labs. On December 20, Judge Jed Rakoff of the U.S. District Court for the Southern District of New York approved a protective order that will keep material confidential leading up to the trial.

The SEC initially filed charges against Terraform Labs and its co-founder Do Kwon back in February, accusing them of orchestrating a multi-billion dollar crypto asset securities fraud.

The collapse of Terraform Labs’ algorithmic stablecoins was the trigger that started the 2022 crypto winter. In May 2022, the TerraUSD and Luna crashed, taking billions of dollars of investor equity with them.

Confidentiality Order Ahead of Crypto Fraud Trial

In the December 20 court filings

, Judge Rakoff granted a motion by both parties to seal discovery documents marked ‘confidential’ ahead of proceedings. His order cited simply finding ‘good cause’ for confidentiality, without elaborating further.

This means that for now, filings from the high-stakes legal battle will avoid public disclosure. The implications could be far-reaching, as the case tackles uncharted territory regarding securities law and its application to digital assets.

Judge Rakoff noted it was unlikely that requests would be approved to seal materials during the actual trial. For the time being, the confidential nature provides Terraform Labs, Kwon, and the SEC the opportunity to strategize behind closed doors.

Terraform Co-Founder Awaits Extradition

Do Kwon himself is still in custody in Montenegro, pending extradition to the United States or South Korea to face charges. Both countries have accused Kwon and Terraform Labs of fraud in relation to UST’s crash. South Korean prosecutors have alleged embezzlement and stock price manipulation.

Many industry observers voiced concerns over the SEC’s aggressive targeting of crypto companies, rather than establishing clear regulatory frameworks. There is hope the Terraform Labs case could bring definitive guidance on cryptocurrency regulations. For now, specifics around the road to trial are safely kept under seal.