SEC has filed Subpoena Enforcement Action Against Terraform Labs

The United States Securities and Exchange Commission (SEC) has filed a Subpoena Enforcement Action against Terraform Labs, the developer of the Terra blockchain network, and Anchor and its CEO, Do Kwon, who earlier filed a lawsuit against the firm itself. The reason for this filing is to make the firm comply with the monetary authority regarding certain documents and testimonies. 

The whole matter dates back to the year 2020 and involves the launch of the Mirror Protocol, which raised the eyebrows of the SEC. The Protocol offered its users to “mirror” an asset, called the mAsset, and gain exposure to its price action in an indirect way. Therefore, the users were allowed to create and trade digital assets that were “mirrors” of U.S. securities. 

The users of the Protocol can gain the governance token MIR by trading these digital “mirrors” of the current U.S. securities. This seemed to be an unethical practice in the eyes of the SEC. 

SEC believes that Terraform Labs violated federal laws

According to the statement released by the SEC, the firm has breached several federal laws through the launch of this Protocol. The authority states that Terraform Labs didn’t register the Protocol as a broker or an exchange that allowed the swapping of U.S.-based securities outside of approved national exchanges. 

“The SEC’s application seeks an order from the court directing Terraform Labs and Kwon to show cause why the court should not compel them to produce documents as required by the subpoenas and compel Kwon to appear for testimony,” said the statement.

Through the Protocol, Terraform Labs solicited their services as an exchange and engaged “in securities transactions.” Furthermore, the firm also stated that based on these activities, the SEC has reason to believe that Terraform Labs and its CEO Kwon have participated in the creation of this project, offering certain services to their users. 

As stated, the firm issued Terraform Labs and its CEO investigative subpoenas, requiring certain documents and “compelling Kwon’s testimony.” Due to lack of response from the parties, the SEC filed the Subpoena Enforcement Action against both the parties in the investigation.