Terraform Labs has petitioned the court for permission to subpoena FTX for non-public information in support of its defense case.
Terraform Labs is back in the news, this time for requesting access to FTX wallets as part of its ongoing fraud defense. According to a recent report, Terraform’s Labs has asked a judge for permission to subpoena information from the insolvent FTX cryptocurrency exchange.
The requested information is crucial to Terraform Labs’ defense against the Securities and Exchange Commission’s (SEC) fraud allegations.
Short Sellers And Alameda Research Are to Blame
The SEC filed a February lawsuit alleging that Terraform Labs issued TerraUSD and Luna tokens without complying with securities regulations, constituting an unregistered securities offering.
The SEC argued that these tokens were investment contracts governed by federal securities laws, but Terraform Labs failed to register them. Do Kwon, co-founder and former CEO of Terraform Labs, was cited as a defendant in the lawsuit due to his prominent role in the company’s operations and alleged participation in the token issuance.
In the aftermath of the collapse of its algorithmic stablecoins TerraUSD and LUNA, Terraform Labs is attempting to shift the responsibility for the failure of the tokens.
The company’s attorneys have asserted that it cannot be held accountable for the share price decline, instead blaming short sellers and accusing them of a coordinated attack.
Specifically, Terraform has identified Alameda Research, a subsidiary of FTX, as the alleged perpetrator. In response, TF has filed a motion in FTX’s bankruptcy case, seeking to subpoena non-public information about the digital wallets used by short sellers during a crucial period from the company’s exchanges.
Potential Consequences And Ongoing Legal Conflict
The action taken by Terraform could have far-reaching consequences for all parties involved. If the subpoenas are issued, the information collected from the exchanges may cast light on the behavior of short sellers and their possible ties to Jump Trading LLC.
This information could aid Terraform’s defenses or reveal attempts to manipulate its tokens’ market price. Nonetheless, if the application is denied or the collected evidence does not support Terraform’s allegations, the company’s defense strategy may be weakened, leaving it susceptible to legal penalties.
