Bankruptcy judge signs off on order allowing Terraform Labs to subpoena FTX entities

Terraform Labs claimed that the failures of its algorithmic stablecoin and governance token were the result of an attack from short sellers, potentially involving Alameda Research.

A judge in the bankruptcy case for defunct crypto exchange FTX has issued an order allowing Terraform Labs to subpoena information that could be used in its case brought by the United States Securities and Exchange Commission (SEC).

In a July 31 filing in U.S. Bankruptcy Court for the District of Delaware, Judge John Dorsey said Terraform Labs was permitted to serve FTX Trading and FTX US with subpoenas aimed at gathering evidence the firm could use in its defense from allegations of fraud by the SEC. The crypto firm claimed in a July 19 filing that the failures of its algorithmic stablecoin and governance token were the result of a coordinated attack from short sellers, potentially involving Alameda Research.

“The Debtors [FTX] may designate any production in response to the Subpoenas in accordance with the terms of the Protective Order entered in the SEC Action or any confidentiality agreement entered into between the Debtors and [Terraform Labs],” said the order.

According to court filings, lawyers for FTX debtors agreed to the court order with “no formal objections”. Terraform Labs requested the ability to subpoena records related to digital wallets used by short sellers connected to FTX entities around May 2022, amid its failure.

Related: Terraform Labs appoints new CEO from existing team: Report

Terraform Labs was one of the first crypto firms to collapse in 2022, partly contributing to a major market crash and causing the price of many tokens to drop. FTX filed for bankruptcy in November 2022.

Do Kwon, one of the co-founders of Terra, is currently serving a four-month sentence in a Montenegrin prison after being convicted of using false travel documents. He may also face extradition to the United States or South Korea for fraud charges.

Magazine: Terra collapsed because it used hubris for collateral — Knifefight