Terraform and Do Kwon’s Attempt to Dismiss Class-action Lawsuit Fails: Report

Jimmy Aki
Last updated: | 2 min read
Source: YouTube/Coinage

Defunct blockchain protocol Terraform Labs is currently fighting legal challenges in Singapore and appears to be facing setbacks.

According to a local news outlet, the creators of the algorithmic stablecoin TerraUST and its founder, Do Kwon, have had their efforts to overturn a class-action (representative action) lawsuit rejected by the High Court.

The High Court of Singapore ruled that the defendants failed to establish a valid arbitration agreement between them and the claimants after stating that the Terra website contained an arbitration clause.

The arbitration clause implies that the claimants waived their rights to a trial by jury or participation in a representative action as soon as they continued transacting on the website.

However, this has not been its first denial in its ongoing legal fight after the collapse of the blockchain network. Earlier this year, the Assistant Registrar (AR) denied their motion for a stay in favor of arbitration.

According to the AR, the debated terms of use were located at a concealed part of Terraforms’ website, and the defendants failed to highlight them properly to the claimants.

Consequently, its attempt to shift the representative action lawsuit to “confidential arbitration proceedings” was also denied.

In response, Terraform’s legal representative filed an appeal and a counterclaim, seeking substantive remedies without challenging jurisdiction.

However, this move was also rejected by the court, asserting that the defendants’ actions indicated an acceptance of the decisions of the legal system.

$57 Million Lost, and US Lawsuit Still Pending

In September 2022, a case was filed by Julian Moreno Beltran, a Spaniard, and Douglas Gan, a Singaporean, on behalf of 375 others. The lawsuit aims to bring the blockchain protocol and its founder to trial for fraudulent misrepresentation of its UST assets.

The claimants alleged a collective loss of $57 million due to the illegal activities involving Terraform and its founder.

They also revealed that Terraform, Do Kwon, Nikolaos Alexandros Platias, and the Luna Foundation Guard (established to hold crypto reserves supporting the stability of the UST stablecoin) induced them to continue holding the asset, even as it failed to maintain its 1:1 peg to the US dollar.

TerraUST, which is self-described as the world’s first algorithmic stablecoin, fell astronomically in early May 2022 following an entire ecosystem collapse kickstarted by the Anchor Protocol.

The stable yield-bearing protocol reneged on its promise to pay users a fixed 20% annual percent yield (APY) for holding UST on its platform.

Following this incident, investors withdrew their UST from Anchor Protocol, causing the stablecoin to plummet to an all-time low (ATL) of $0.05, despite Terraform’s attempts to salvage the situation.

The subsequent depegging led to a crypto winter, leading to the loss of over a trillion dollars in the nascent industry.

Companies like the crypto hedge fund Three Arrows Capital (3AC) faced financial challenges. The ripple effect was felt throughout the nascent industry, with global crypto investors witnessing significant losses within hours.

Meanwhile, the US Securities and Exchange Commission (SEC) has also begun legal action against Terraform and its founder.

The SEC claimed that Terraform’s collapse resulted in the wiping out of billions of dollars of American investors’ money. The US regulator charged the blockchain network with fraud for selling unregistered securities.

In response, Terraform’s legal team attempted to counter the SEC’s charges in October by filing a motion for summary dismissal of the agency’s claims.