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Terraform Labs Crypto Trial Day 7 Has SEC Expert Using Data from FTX on Jump Moves

by Matthew Russell Lee, Patreon Book Substack

SDNY COURTHOUSE, March 29 – The SEC's trial against  Terraform Labs began on March 25. Inner City Press was there, thread. On November 17, 2023 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 tweeted that too, thread.

  From March 27, Day 3, thread

  From April 2, Day 7, from thread:

Jury entering! SEC puts on the stand its own enforcement / summary witness, Matthew Scott Lambert SEC lawyer: What do you do at the SEC? Lambert: I work in-

Defense: Objection! He is not an expert witness. Irrelevant. Judge Rakoff: Sustained. Just get to it

Lambert: I reviewed Tweets by Do Kwon. SEC lawyer: Read that thread. Lambert: "But ser" - [spelled s-e-r, Lambert points out] At Anchor underscore protocol, on the borrowing side, a lot of users have gotten liquidated due to cascading liquidations

 Defense: Your Honor, may we have a sidebar? Judge Rakoff: Yes. But first I'm admitting these exhibits [Whispered sidebar begins]

 SEC lawyer: Mr. Lambert, could you read the last paragraph here? Lambert: "Further we have paused" these activities during the tax audit SEC lawyer: No further questions.

SEC lawyer: We have a stipulation on Jump Crypto's Kanav Kariya. His attorney's have advised the parties that if called at trial, Mr. Kariya would invoke his Fifth Amendment rights [against self-incrimination]. Judge Rakoff: The jury may draw an adverse inference

 SEC lawyer: We will now play this between Do Kwon and Mr. Kariya.  [Audio is low] Judge Rakoff: And the exhibit is 90 degrees off. So far this has not been a useful exercise

 Next (and last?) SEC witness: Rutgers professor Bruce Mizrach. "I work in the field of market micro structures." SEC lawyer: What do you study? Mizrach: Carbon markets, crypto markets...

SEC lawyer: And stable coins? Mizrach: Yes.SEC lawyer: Have you traded financial instruments in your own account? Mizrach: Yes. I published a paper on it, using vector auto regression, trying to predict the next few ticks on NASDAQ stocks

 SEC lawyer: How much is the SEC paying you? Mizrach: $750 an hour for research, $1000 an hour for testimony, also for my deposition SEC lawyer: What were you asked to provide? Mizrach: A market micro structure analysis of Terraform and the role of Jump

 SEC lawyer: What coins did you study in this matter? Mizrach: UST and Luna. SEC lawyer: What is Jump Trading? Mizrach: A proprietary trading firm. SEC lawyer: What did you study? Mizrach: Agreements between Terra and Jump about receiving Luna tokens at 40 cents

 [After a sidebar] SEC lawyer: Where did you get the data in Plaintiffs' Exhibit 192? Mizrach: An exchange called FTX

Mizrach: My analysis is that the peg would have been permanently lost had it not been for Jump's trading. I used vector auto regression. If Jump had just remained a market maker with a flat position it would have been 95 cents lower or 55 cents in the Bitcoin pair

 SEC lawyer: Mr. Mizrach, could a member of the public know that Jump, or even just one purchaser, was making these buys? Mizrach: No.  SEC lawyer: Was Terraform's on-chain swap activity restoring the peg? Mizrach: No.

SEC lawyer: Final question, Professor. What is your opinion on the effect of Jump's trading? Mizrach: The price would have been close to zero. SEC lawyer: No further questions. [And that's their case]

Judge Rakoff: I am sitting on the 2d Circuit tomorrow

Defense's submitted list of cases on Patreon here

More on Substack here

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


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