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‘SEC failed to follow its own rule,’ Terraform CEO responds to SEC enforcement action

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It should have been a good month for Terraform Labs, as Terra’s LUNA has been rallying since November. However, some news on the legal front means the blockchain company could soon be in court.

To comply or not to comply

The United States Securities and Exchange Commission [SEC] previously issued two subpoenas to Terraform Labs CEO Do Kwon. However, Kwon responded by suing the SEC for the way it served the documents.

On 12 November, however, the SEC stated it had filed an action against Terraform Labs and Kwon. This was to obtain an order which would force the company to comply with the regulator’s investigative subpoenas. The SEC further claimed that Terraform Labs and Kwon have not submitted any documents.

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But Terraform Labs presented its side of the argument. The Singaporean company announced,

“…the subpoenas are invalid and unenforceable because the SEC failed to follow its own rule that requires a specific Commission order of authorization to serve an individual personally if he is represented by counsel…”

In short, Terraform Labs claimed that the SEC didn’t deliver the subpoenas in person, and thus, the documents had no power. Terraform Labs stated,

“Ultimately, the court will decide whether the SEC acted properly. We look forward to presenting our case to the court.”

Do Kwon speaks out

The main issue is Terraform Lab’s Mirror Protocol, which would let users mint and trade assets reflecting the price of traditional stocks. Terraform’s Mirror Protocol assets are called mAssets and there are also governance tokens [MIR]. The SEC wanted to investigate whether the blockchain company had violated federal securities laws.

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During an episode of the Unchained podcast, Kwon claimed that the SEC’s intention was to “intimidate and embarrass” him. He reported that the SEC used a private company to approach him during the Messari Mainnet event. Coming to regulation in general, Kwon stated,

“It’s also important that when crypto companies are working with regulators that they do it from a position of strength and confidence[.]”

In its latest filing, the American regulator stated,

“The SEC is continuing its fact-finding investigation and, to date, has not concluded that any individual or entity has violated the federal securities laws.”

Still under consideration?

It’s important to note that Grayscale Investments has added Terra [LUNA] to its list of assets under consideration. The pertinent question remains: could the SEC’s action or Kwon’s own case damage the asset’s chances of joining the Grayscale product family? Well, Ripple’s XRP, currently embroiled in an SEC lawsuit, is also not on the list.

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SEC’s Investor Advisory Committee to Discuss Crypto on December 2

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  • SEC’s Investor Advisory Committee will soon discuss crypto and digital assets today.
  • This is to ensure serene investor protection and market integrity in the face of new technologies.

The US SEC’s Investor Advisory Committee is on its heels to discuss their nagging concern about crypto and ‘Investor Protection’ on December 2, 2021.

Truth be told, the panel will highlight all the ins and outs of digital assets with a special focus on the regulatory framework that governs them. With no exemption, the authority will take on this event to explore and identify the main lines of intersection of digital assets, sooner rather than later.

They hope to do this with a specific lens to examine the ups and downs of the market issues. Prior to this, the committee will further define the compounding risk and its associated dangers in the emerging technologies in the crypto market.

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On this note, apart from the crypto discussion, the panel will address various topics regarding blockchain technology, stablecoins, and crypto-based ETFs. All these topics will be treated publicly in one holistic manner under the event.

Moreover, the meeting agenda is quite a solid move that seeks to ensure smooth market integrity. In essence, it aims to also empower a good outlook when it comes to investors’ protection, particularly in the face of new technology.

People think that this occasion is a good opportunity for the SEC to rethink and restructure its harsh crypto regulation approach.

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SEC Chair: Innovation Around DeFi “Could Be Real”

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Gary Gensler believes that DeFi could offer “real innovation,” but he is convinced that the sector will not survive without regulatory compliance.

U.S. Securities and Exchange Chair Gary Gensler said that new technologies do not tend to persist if they fail to come into compliance with the law during a fireside chat with Jay Clayton at the Digital Asset Compliance & Market Integrity Summit.

While Gensler believes that decentralized finance could be the source of innovation, he claims that it has to fall within the existing regulatory framework:

The innovation around DeFi could be real, but they won’t persist if they stay outside of the regulatory framework.

Gensler also voiced his concerns about the centralization of some DeFi projects and implied that the goal of such projects might be to skirt existing anti-money laundering laws.

Speaking of the regulator’s reluctance to approve a spot Bitcoin exchange-traded fund, Gensler told No. 42 that trading around the globe is not inside the U.S. regulatory register. He urged the trading and lending platform to “come in and talk”:

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Trading and lending platforms are really in an important place for investor and consumer protection. Come in and talk to us… work with us. Where appropriate we’ll use the enforcement tool. Work to get registered with the law.

The SEC boss has reiterated that stablecoins remind him of poker chips at a casino:

[Stablecoins] made it more efficient within the ecosystem. But it also allowed people around the globe, the people who tried to, to avoid money laundering and tax compliance in jurisdiction after jurisdiction.

According to Gensler, stablecoins are responsible for 80% of trading on the crypto market.

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SEC Commissioner Will Not Say If Ether Is a Security

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The SEC remains mum about Ether’s regulatory status amid accusations of picking winners and losers that come from the increasingly frustrated XRP community.

U.S. Securities and Exchange Commissioner Hester Peirce did not answer whether or not Ether, the second-largest cryptocurrency, is a security when asked by her Twitter follower.

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The “Crypto Mom” says that she is willing to build a “sensible and clear” regulatory framework for cryptocurrencies, but she will not focus on particular digital assets.

As reported by U.Today, SEC Chair Gary Gensler has repeatedly dodged the very same question on numerous occasions, making it clear that he will not speak about separate cryptocurrencies to remain neutral.

At the same time, the agency has distanced itself from a 2018 speech made by its former top official William Hinman, in which he famously said that Ether is not a security.

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Amid the SEC’s almost year-long legal battle with Ripple, calls for regulatory clarity continue to persist.

Last month, Ripple CEO Brad Garlinghouse opined that Ether had managed to surpass XRP by market capitalization because of the SEC’s “free pass.”

Peirce, despite being a staunch crypto supporter for years, has refused to speak about the Ripple case since SEC Commissioners are prohibited to speak about ongoing litigation or enforcement actions.

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