| 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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