Court Rules in Favor of Feds Ambushing Do Kwon

A court ruled Wednesday that Terra (LUNA) founder Do Kwon must comply with a subpoena from the Securities and Exchange Commission, despite his objection that federal agents improperly delivered it to him by ambushing him at a conference in September.

“The subpoenas were served as part of an SEC investigation into whether appellants violated federal securities laws in their participation in the creation, promotion, and offer to sell various digital assets related to the ‘Mirror Protocol,’ a blockchain technology,” the Second Circuit Court of Appeals noted in its ruling. The protocol was aimed at allowing users to trade “mirrored assets that emulate the price of stocks” on U.S. exchanges.

Agents broke into Messari’s annual Mainnet conference in New York City in September to serve him with the subpoena, which demanded documents from his Singapore-based company, Terraform, as part of an investigation into whether it “violated federal securities laws in their participation in the creation, promotion, and offer to sell various digital assets.” They also emailed a copy of the subpoena to his attorneys.

Kwon sought to argue that both methods of service were improper, saying he had informed the SEC he was represented by counsel, thus compelling the agency to serve his attorneys — but also that the emails “did not purport to have effected service.”

“Appellants’ 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 said. “We have considered all of appellants’ remaining arguments and conclude they are without merit.”

If you’re wondering when I actually decided to run for Senate, it was when these fuckers came to my event, didn’t buy a ticket, and served one of the speakers a subpoena.

Enough talk.

More war on our out of control regulatory state.

— Ryan Selkis 📖 🖊🔑 (@twobitidiot) September 20, 2021

Messari founder Ryan Selkis opined on the agents breaking into his conference at the time, writing on Twitter, “If you’re wondering when I actually decided to run for Senate, it was when these fuckers came to my event, didn’t buy a ticket, and served one of the speakers a subpoena.” (Despite his commentary, Selkis has yet to launch any political campaign.)

The ruling is unrelated to last month’s collapse of the LUNA ecosystem, when its stablecoin, TerraUSD, plummeted from roughly $1 to 10 cents, where it stood as of Wednesday. LUNA consequently fell from $87 to less than a penny, leading some investors to commit suicide. Terra holders voted to reclassify the tokens as “classic” versions, while relaunching LUNA. The new version was priced at around $3 as of Wednesday.

The original version of 30-year-old Kwon’s LUNA token boasted a market capitalization of more than $40 billion at its peak, bolstered by support from American investment firms including Pantera Capital, Lightspeed Venture Partners, and Galaxy Digital — whose founder, Mike Novogratz, revealed to his social-media followers in January that he had gotten a LUNA tattoo on his shoulder. Those funds mostly profited from their investment, selling prior to the project’s end.

Adding insult to injury, a May 30 report published by Arcane Research suggested that Kwon’s company used a network of “John Doe wallets” to mask the fact that it dumped up to $6 billion in LUNA over the 19 months preceding its violent demise.

Kwon, a South Korean citizen, could face prison if officials in either the U.S. or his home country could prove that he committed fraud, though legal experts say that is unlikely.