SEC Expands Terra’s Scope in Mirror Protocol Investigation (Report)

According to South Korean media Money Today, the US Securities and Exchange Commission is expanding the scope of its investigations into the Mirror Protocol to add LUNA.

SEC Vs. Terra

In the latest development in legal tensions, the SEC has sought LUNA-related documents from Terraform Labs as well. In a parallel investigation launched last month, the regulatory entity had been looking into potential Securities Act violations.

But the legal tensions between Terra ecosystem and the SEC date back to September 2021, when Kwon was served with a subpoena as he exited an escalator at Messari’s Mainnet conference.

The actual issue was the Terra-based decentralized finance (DeFi) platform – Mirror Protocol – on which synthetic crypto-versions of popular stocks like Tesla, Microsoft, and Airbnb, are minted and traded. Kwon had Initially denied receiving the subpoenas. But later sued the SEC and claimed that the subpoenas were “improperly issued and served.”

In February this year, a New York court ordered Terraform Labs and its CEO to comply with the subpoenas.

Following this, Kwon filed an appeal overruled on June 8 by a US court, stating he and his company are required to comply with investigations by the SEC into the Mirror Protocol. Kwon argued that the TFL lacked sufficient presence within US markets and that the subpoena should have been delivered to the exec’s legal counsel, not him personally.

Upholding the February ruling, the United States Court of Appeals justified the SEC’s actions by pointing out TFL’s numerous marketing and promotion to US consumers, retention of US-based employees, contracts with US-based firms, as well as business trips to the country related to Mirror Protocol.

As part of the ruling, the TFL and Kwon were required to present all necessary documents related to the DeFi protocol and provide testimony to the SEC. But there was no mention of LUNA-related documents previously.

Legal Troubles

Mounting legal woes and a bear market have been proving to be a tough year for the Terra ecosystem. South Korean prosecutors have imposed travel restrictions on former and existing Terraform Labs employees from leaving the country amid the ongoing investigation. A former Terraform Labs developer, Daniel Hong, confirmed the report and explained that they were not notified earlier about the same. He said,

“None of us were notified of this at all; when I found out about this, the South Korean prosecution told me they usually don’t notify people of this because they might destroy evidence and/or leave the country beforehand. Tbh people being treated as potential criminals like this is absolutely outrageous and unacceptable bet anyone who was willing to cooperate would no longer want to after this madness.”