Co-founder of Terraform Labs, Do Kwon, has taken a legal step by petitioning a United States (US) district judge to dismiss a securities and fraud lawsuit filed by the federal securities regulator.

His defence argues that the Securities and Exchange Commission (SEC) has failed to provide sufficient evidence to substantiate their allegations of wrongdoing.

In a filling submitted to the New York District Court on 27 October, legal representatives for Do Kwon and Terraform Labs presented a counterargument.

They contended that the cryptocurrencies in question, including Terra Luna Classic (LUNC), TerraClassicUSD (USTC), Mirror Protocol (MIR), and its Mirrored Assets (mAssets) designed to mirror stocks on-chain, do not fall under the classification of securities as claimed by the SEC.

The lawyers wrote:

“After two years of investigation, the completion of a discovery period that resulted in the taking of more than 20 depositions, and the exchange of over two million pages of documents and data, the SEC is evidentiarily no closer to proving that the Defendants did anything wrong."

Moreover, they asserted that many of the SEC's claims lacked a factual basis and even accused the regulatory body of making false allegations, notably regarding an accusation that Do Kwon and Terraform surreptitiously transferred substantial sums to Swiss bank accounts for personal gain.

The lawyers added:

"The SEC knew this allegation was false when it filed this case. This is made even worse by the undisputed fact that TFL had no customers, and thus no customer funds."

SEC's Claims

The SEC's lawsuit, filed in February, claimed that Do Kwon and Terraform sent 10,000 Bitcoin (BTC) to a Swiss financial institution and withdrew $100 million while also alleging that they engaged in fraudulent activity by disseminating false and misleading statements.

Do Kwon and Terraform further moved to exclude the expert opinion provided by the SEC, including a report by Rutgers University economics professor Bruce Mizrach, which they vehemently criticised as "junk science."

A prior attempt to have the case entirely dismissed was denied by the court, with Judge Jed Rakoff acknowledging that the SEC had presented a "plausible claim."

This determination meant that the case appropriately fell under the purview of the agency's securities enforcement jurisdiction.

Simultaneously, in a separate legal arena, lawyers representing Terraform Labs co-founder Daniel Shin are actively contesting his innocence in the Terra USD collapse case.

In April, he faced an indictment encompassing various charges, including fraud.

With these multifaceted legal battles unfolding, the intricacies of these complex cases have left many observers eager to see how they will evolve and ultimately conclude in the days ahead.