On June 08, the United States Court of Appeals ruled against Terraform Labs and its CEO Do Kwon in a Securities and Exchange Commission(SEC) subpoena appeal.
The Court of Appeals upheld a district court’s order that commanded compliance with investigative subpoenas served by the SEC on Terraform Labs and Do Kwon, as revealed by the press release.
It all happened when in 2021, the SEC started investigating if Kwon and Terraform violated federal securities laws with the creation, marketing, and the offer to trade several digital assets related to the “Mirror Protocol”, a blockchain technology.
For this investigation, subpoenas were served by the SEC for documents from Terraform and Kwon, and testimony from Kwon.
As per appellate court’s order, Terraform and Kwon argued that the SEC violated its own rules when it served the subpoenas by handing copies to Kwon, while he was in New York.
Another argument was that the district court did not have personal jurisdiction because both the firm and its CEO had insufficient contacts with the US.
The appellate court rejected the arguments saying that Terraform and Kwon’s “reading of the Rules is contrary to the text and would produce absurd results by allowing a party to insist on service through counsel, but allow the party to block said service by not authorizing their counsel to receive any filings.”
The court further declined Terraform and Kwon’s jurisdictional arguments and infact claimed that the district court’s jurisdiction over Terraform and Kwon was instead due to their “purposeful and extensive U.S. contacts”.
The contacts that come with its business endeavours includes promoting to U.S. investors, employing U.S. based personnel, and its deals with the U.S. based clients.
Note that the SEC is still conducting its investigation and, till now has not inferred that any individual or entity has flouted the securities laws.
