Lawyers representing the investors submitted a notice of voluntary dismissal of the lawsuit against Terraform Labs and Do Kwon in the United States District Court for the Northern District of California.
The class-action lawsuits against Terraform Labs and its co-founder Do Kwon alleging fraud, were abruptly withdrawn, leaving the reasons undisclosed.
Terraform Labs, renowned for its Terra stablecoin, started operations in 2018. However, a sudden crash in May 2022 occurred when the Terra blockchain experienced a temporary halt following the collapse of the TerraUSD (UST) stablecoin and Luna network. This breakdown resulted in a staggering loss of nearly $45 billion in market capitalization within a week.
The sudden fall of Terra resulted in intense scrutiny from global authorities, prompting the company to respond to various allegations and fraud cases. During this period, investors, led by Nick Peterson, filed a lawsuit, accusing the company and Kwon of orchestrating a deliberate scheme to defraud them.
The Reasons Behind the Lawsuit Withdrawal Remain Unknown
Yet, on September 28, a surprising development occurred. Lawyers representing the investors submitted a notice of voluntary dismissal of the case against Terraform Labs and Do Kwon in the United States District Court for the Northern District of California. The reasons for this sudden withdrawal remain undisclosed. The notice stated:
“Lead Plaintiff Michael Tobias and named plaintiff Nick Patterson… hereby voluntarily dismiss this case, in its entirety, without prejudice, only against defendants Terraform Labs, Pte. Ltd., and Do Kwon… Because the Court has not certified the proposed class for any purpose in this case and this dismissal is without prejudice, it will not bind members of the proposed class. No notice to the proposed class is necessary. Neither Plaintiffs nor their attorneys have received or will receive any consideration for this dismissal.”
Given that the withdrawal is considered voluntary and made without prejudice, investors retain the option to reinstate the case at any point without any adverse impact from their prior dismissal filing. Notably, it is clear from the filing that neither Terraform Labs nor Do Kwon responded to the case or took any actions that would have led to a summary judgment.
Ongoing Legal Challenges
However, this dismissal marks just one victory for Terraform, as it still faces other legal challenges. On February 16, 2023, the United States Securities and Exchange Commission (SEC) charged Terraform and CEO Do Kwon with defrauding investors through crypto schemes. The SEC alleged that Terraform and Kwon failed to provide the public with complete and truthful disclosure, particularly concerning crypto asset securities like LUNA and TerraUSD. SEC Chair Gary Gensler remarked:
“We allege that Terraform and Do Kwon failed to provide the public with full, fair, and truthful disclosure as required for a host of crypto asset securities, most notably for LUNA and TerraUSD… We also allege that they committed fraud by repeating false and misleading statements to build trust before causing devastating losses for investors.”
Amidst this uncertainty, the future of Terraform remains unclear and unpredictable. What remains certain is that decisions made in the coming months will undeniably shape the fate of Terraform Labs and its co-founder, Do Kwon. The cryptocurrency world eagerly awaits the unfolding legal drama, which could potentially impact the entire crypto industry.