The authorization to issue subpoenas to FTX entities will help Terraform Labs to prepare for a legal battle with the SEC.
The unfolding legal drama surrounding defunct crypto exchange FTX and crypto firm Terraform Labs takes a new turn as the bankruptcy judge gives Terraform Labs the green light to seek information through subpoenas. A decision that could shed light on allegations of fraud.
The US Bankruptcy Court for the District of Delaware authorized Terraform Labs to serve subpoenas to FTX Trading and FTX US in a July 31st filing. The decision will help Terraform Labs to gather evidence for its defense against US Securities and Exchange Commission's fraud accusations.
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The crypto firm had previously argued in a July 19th filing that its algorithmic stablecoin and governance token failures were potentially a coordinated attack from short-sellers involving entities like Alameda Research.
In the official ruling, Judge John Dorsey stated:
The Debtors <FTX> may designate any production in response to the Subpoenas in accordance with the terms of the Protective Order entered in the SEC Action or any confidentiality agreement entered into between the Debtors and <Terraform Labs>.
Interestingly, there were no formal objections from FTX's lawyers, who seemingly agreed to the court order.
The subpoenas will be used to investigate records connected to digital wallets utilized by short-sellers linked to FTX entities around May 2022. This period coincides with Terraform Labs' failure.
However, it is worth noting that on the same day, Judge Jed Rakoff of the Southern District Court of New York dismissed Terraform Labs and Do Kwon's request to dismiss SEC's lawsuit.
The situation's complexity is further highlighted by the legal troubles of Do Kwon, Terra's co-founder, who is currently serving a four-month sentence in a Montenegrin prison for using false travel documents. After serving his sentence in the Balkan country, Do Kwon faces extradition to the United States or South Korea for fraud charges.
The authorization to subpoena FTX entities marks a potentially pivotal moment in Terraform Labs' ongoing battle with the SEC. This decision not only allows Terraform Labs to dig deeper into allegations of coordinated short-seller attacks but also emphasizes the intricate web of legal challenges faced by players in the ever-evolving cryptocurrency space.
