In a significant development, Terraform Labs, the embattled cryptocurrency platform, finds itself embroiled in complex legal battles on two fronts – one in the United States and another in South Korea. In the US, Terraform Labs and its co-founder, Do Kwon, are vigorously contesting allegations put forth by the U.S. Securities and Exchange Commission (SEC) regarding their involvement in a multi-billion dollar crypto asset securities fraud.

In response to the SEC’s accusations, Terraform Labs and Do Kwon have filed a motion seeking dismissal of the case. The crux of their defence revolves around what they claim is a lack of substantial evidence to support the SEC’s allegations.

The SEC contended that Terraform Labs and Kwon engaged in the sale of unregistered cryptocurrency tokens, manipulating the price of the UST stablecoin and causing substantial financial losses to investors. Terraform Labs vehemently denied these allegations, arguing that the SEC’s claims are not based on credible sources and lack a solid foundation.

Simultaneously, in South Korea, Terraform Labs co-founder Shin Hyun-Seong, known as Daniel Shin, is facing legal proceedings. Shin, accused of defrauding investors, has distanced himself from Terraform’s collapse. Former CEO Shin’s lawyer said, 

We broke up with Do-hyung Kwon in 2020 for business reasons, and the cause of the slump was due to the unreasonable operation of the anchor protocol and external attacks carried out by Do-hyung Kwon after the breakup,” and added, “It has nothing to do with the defendant.

The lawyer asserted that the unreasonable operation of the Anchor Protocol and external attacks by Do-hyung Kwon after their business partnership led to Terraform’s downfall. Shin denied any direct involvement in the events that transpired.

The prosecution in South Korea has drawn parallels to the SEC’s case in the United States, highlighting alleged violations of local laws akin to those raised by the SEC. This development has further complicated Terraform Labs’ legal situation, drawing international attention to the cryptocurrency industry’s regulatory challenges.

Recently, Terraform Labs accused  U.S.-based American market-making firm, Citadel Securities LLC, of intentionally destabilizing TerraUSD (UST) stablecoin in May 2022. The accusation claimed that this was not the result of an algorithmic failure, but rather a concerted, intentional effort by the firm.