Judge Approves Subpoenas for Terraform Labs in Defense Against SEC Fraud Charges in FTX Bankruptcy Case

Judge John Dorsey of the U.S. Bankruptcy Court has granted Terraform Labs’ request to subpoena crucial documents, potentially aiding their defense against fraud charges brought by the SEC in the ongoing FTX bankruptcy case.

The District of Delaware’s U.S. Bankruptcy Court, under the authority of Judge John Dorsey, has authorized the issuance of subpoenas by Terraform Labs for essential documents. These documents could serve as crucial evidence in Terraform Labs’ defense against fraud allegations made by the United States Securities and Exchange Commission.

Terraform Labs, in its defense claim submitted on July 19, asserted that the failure of its algorithmic stablecoin and governance token was not a result of internal mismanagement but rather the consequence of an orchestrated attack by short-sellers. The claim also suggested the possible involvement of Alameda Research in this alleged assault.

Following Judge Dorsey’s approval, FTX Trading and FTX US will receive subpoenas from Terraform Labs. Any information obtained through these subpoenas will be subject to the terms of the Protective Order enacted in the SEC Action or any other confidentiality agreements existing between FTX and Terraform Labs. FTX’s legal representatives reportedly did not raise any formal objections to the court order. Terraform Labs sought these subpoenas primarily to investigate digital wallets associated with short-sellers linked to FTX entities around May 2022, a time when Terraform was facing failure.

Terraform Labs was one of the first crypto companies to encounter difficulties in 2022, leading to a significant market crash and a drastic decline in the prices of various tokens. Subsequently, FTX filed for bankruptcy in November 2022.

One of Terra’s co-founders, Do Kwon, is currently serving a four-month sentence in Montenegro due to convictions related to fraudulent travel documents. Additionally, he may face extradition to either the United States or South Korea on the basis of additional fraud charges.

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