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Terraform Labs SEC Case Moves Toward Trial But Defense Experts Unny and Parlour Barred

by Matthew Russell Lee, Patreon Book Substack

SDNY COURTHOUSE, Nov 22– The SEC's case against  Terraform Labs is moving toward a January 2024 trial. On November 17 US District Court for the Southern District of New York Judge Jed S. Rakoff held a hearing on potential trial experts. Inner City Press live tweet, thread:

OK - now in crypto case of SEC v. Terraform Labs Pte Ltd. et al  - defendants want in a defi expert, Professor Parlour,  from Berkeley.

SEC lawyer: Prof Parlour says the use case for UST was as a fiat replacement- but admits she's never seen that. We'll be calling Terra employees as witnesses. Prof  Christine Parlour takes the stand, and says (in British accept) I put the system design in context

Judge Rakoff: So we're talking crypto securities- I mean cryptocurrency, I'm sure no one is interested in that distinction (grins) This case alleges fraud Parlour: The DiMaggio paper has a limited scope. Judge Rakoff: I'll rule by Thanksgiving.

Judge: The next proposed defense expert didn't do the analysis himself, Cornerstone Research did. SEC: He has no certifications in blockchain analysis. Now Raj Unny on the stand. Judge: How much are you being paid? Unny: $950 an hour. Judge: Do you want a raise?

Unny: I know the code. Judge: Why is the name of the company that tried to maintain the peg in May 2021 kept confidential? Counsel: They asked for it. Judge: I'm about to say their name Company's outside counsel " Elliot Bacon" says the material is confidential

 Judge: The name of the company is Jump, jumping right into it.

 SEC: Jump has an incentive to support the peg. Judge: Sure there were motivations. But this proposed expert was looking at the effects of Jump's trading, not its motives. SEC: Jump earned a $400,000 profit from a long position in UST.

Terrence Hendershott: The motivations don't go into the statistical model.  Judge: You were paid $1400 an hour. Why more than Ms Parlour? Hendershott: I have more experience.

Judge: But are your opinions within your area of expertise? Hendershott: I've studied technology and markets for 30 years. Judge: I will let the SEC question you - like Perry Mason, go up to him. SEC: You estimate Jump made $400,000? [Note: that 400 thousand]

 Next proposed expert is on stand. Defense lawyer: If Jump trades ten seconds apart, does your model consider if there was another trader- SEC's rebuttal expert [to Hendershott] I don't see one. I used the same data in both reports. Judge: SEC questions?

 SEC: What occurred that day between 13:30 and 14:00? A: The Jump witnesses will tell us. Next SEC expert is Matthew Edman Judge: How tall are you? Edman: 6'3". I reviewed source code. Judge: SEC alleges it was a lie that Chai was using the blockchain

 Edman: The inputs from the server were not available for review SEC: Defendants says they couldn't get it from Naver Edman: That's like the AWS of Korea Judge: We'll break here

 We're back. 2d defense lawyer: We too are interest in Chai and the LP server. Judge: Is any of this data in the US? TFL lawyer: No. It's all in Korea. Judge: I can compel anything in the US. There's the Hague Convention, or I can write letters to judges overseas

Edman: I reviewed posts by Do Kwon in which he claimed some transactions were Chai transactions...  Judge: We're done for today. Get me Howey briefing. I will get you a bottom line decision by Thanksgiving. Inner City Press will cover it

There's more: SEC: Will Do Kwon attend? TFL lawyer: We can't know. Judge: We need to know by late December. Oh and I'll speak at Columbia but not about thus case, only Howey.

More on Substack here

Before Thanksgiving, Judge Rakoff issued this bottom line ruling: "After considering the parties' full briefing and the arguments and answers presented at the hearing, the Court hereby rules as follows: ( i) the Court denies defendants' motions to exclude the testimony of the SEC's experts, Dr. Mizrach and Dr. Edman; (ii) the Court denies the SEC' s motion to exclude the testimony of Dr. Hendershott; and (iii) the Court grants the SEC's motions to exclude the testimony of Mr. Unny and Dr. Parlour. An opinion explaining the reasons for these rulings will follow in due course."

The case is Securities and Exchange Commission v. Terraform Labs Pte Ltd. et al., 23-cv-1346 (Rakoff) 

 Do Kwan's criminal  case has been assigned to District Judge John P. Cronan, after his arrest at the airport in Montenegro.   

 The indictment, formally against Do Hyeong Kwon, cites Terra LUNA and TerraUSD. South Korea has also asked that Do Kwon be extradited.  Inner City Press, which covers all things crypto in the SDNY and beyond, is tracking it.

The SDNY case is US v. Kwon, 23-cr-151 (Cronan)


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