Terraform Labs seeks access to FTX wallets in fraud defense

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Terraform Labs is seeking permission from a judge to subpoena data from bankrupt cryptocurrency exchange FTX, arguing that the information could help defend against a lawsuit filed by the U.S. Securities and Exchange Commission (SEC) in February. show.

Seeking evidence to support its defense of fraud charges, Terraform’s attorneys filed a motion in FTX’s bankruptcy suit on July 19 seeking access to the company’s information on digital wallets used by short sellers between March 2022 and May 2022. Terraform claims the stablecoin’s failure was the result of a coordinated attack from short sellers, possibly involving FTX sister company Alameda Research.

“In order to establish these defenses, TFL requires debtor records regarding wallets, accounts and assets used to trade on FTX International and US exchanges and the sale/offer of high volume cryptocurrencies developed by West Realm Shires Services Inc. (if any) affiliated with FTX Trading and FTX US.”

On February 16, the SEC filed a lawsuit against Terraform Labs and its founder Do Kwon, alleging that they “engaged in a multi-billion dollar cryptocurrency securities fraud.” According to regulators, Terraform offered unregistered securities in its operations through failed algorithmic stablecoins, TerraUSD (UST), and Terra Luna (LUNA) tokens. His Terraform failure in 2022 cost him over $40 billion from the cryptocurrency market.

The motion also requested information about the wallet used by Jump Trading, which the SEC accused of collaborating with Terraform in manipulating the price of the UST stablecoin. Jump Trading is being sued in Illinois on similar grounds for allegedly purchasing millions of UST tokens in 2021 as part of a deal with Terraform to bring the stablecoin peg back to $1.

“Defendants disguised the recovery of the UST by claiming that algorithms were able to restore and maintain the price peg. According to the SEC, the UST restored the price peg instead because the defendants entered into a deal with US trading firm Jump Trading. […] We need to buy a substantial amount of UST to support the price,” the court filing reads.

Terraform also seeks to dismiss a parallel class action lawsuit it filed in California, arguing that because it is based in Singapore, the U.S. securities laws mentioned do not apply to its foreign development protocol.

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