In a recent development in the bankruptcy case of crypto exchange FTX, a bankruptcy judge has authorized Terraform Labs to issue subpoenas to gather information relevant to its defense against allegations of fraud made by the United States Securities and Exchange Commission (SEC). The order, issued by Judge John Dorsey in the U.S. Bankruptcy Court for the District of Delaware, allows Terraform Labs to obtain evidence from FTX Trading and FTX US, potentially shedding light on the firm’s claims that short sellers, possibly involving Alameda Research, orchestrated an attack leading to the failures of its algorithmic stablecoin and governance token.
The court order permits FTX to produce the requested information based on the terms outlined in the Protective Order entered in the SEC Action or any confidentiality agreement established between FTX and Terraform Labs.
Lawyers representing FTX debtors reportedly agreed to the court order without formal objections. Terraform Labs had sought the ability to subpoena records pertaining to digital wallets used by short sellers associated with FTX entities during the period around May 2022, which coincided with its collapse. It is worth noting that Terraform Labs was one of the early casualties of the crypto market crash in 2022, contributing to a significant decline in token prices. FTX subsequently filed for bankruptcy in November 2022.
Notably, one of the co-founders of Terra, Do Kwon, is presently serving a prison sentence in Montenegro for using falsified travel documents. He may also face potential extradition to the United States or South Korea due to fraud charges.
This development will be closely watched by industry participants and regulators alike, as it underscores the importance of regulatory compliance and the need for transparent investigations in the cryptocurrency space. The outcome of the subpoenas could have significant implications for the ongoing SEC case against FTX and may provide insights into the alleged coordinated attack on Terraform Labs.
Overall, the court’s decision to grant Terraform Labs subpoena power represents an important milestone in the legal proceedings surrounding FTX and its bankruptcy. It highlights the judiciary’s commitment to ensuring a fair and comprehensive investigation into the allegations of fraud and potential market manipulation.