Judge Approves Confidentiality Order in SEC vs. Terraform Labs Case Before Trial

The civil case between the United States Securities and Exchange Commission (SEC) and Terraform Labs has seen a federal judge in the U.S. District Court for the Southern District of New York approve a protective order for keeping confidential materials ahead of the trial.

According to a filing on December 20, Judge Jed Rakoff indicated that both the SEC and Terraform Labs had agreed to terms approved by the court. These terms stipulate that parties should refrain from disclosing materials marked as confidential. Additionally, the court will seal any discovery filings marked as confidential before the trial. Judge Rakoff noted that it was “unlikely” he would approve requests to close at a later stage.

While the order didn’t specify the reason for the confidential filings, it mentioned Judge Rakoff’s finding of “good cause.” The agreement on December 18 involved lawyers for SEC, Terraform Labs, and co-founder Do Kwon, presently in Montenegro custody.

Terraform Labs’ collapse, notably TerraUSD (UST) de-pegging from the U.S. dollar, was a significant event, impacting the 2022 crypto downturn. February saw the SEC charge the blockchain platform and Kwon for allegedly orchestrating a “multi-billion dollar crypto asset securities fraud.

The outcome of the SEC v. Terraform Labs civil case holds potential implications for legal matters affecting numerous companies in the crypto space. In August, a judge approved an order allowing Terra to subpoena FTX entities as part of the defunct crypto exchange’s bankruptcy case. Judge Rakoff also accepted confidential materials from Jump Crypto Holdings in November as part of the SEC civil case.

Critics express worry about the SEC’s approach, labeling it “regulation by enforcement” for U.S. crypto firms. The SEC currently has pending cases against major platforms like Binance, Kraken, Ripple, Coinbase, and others.