Citadel Securities Data: Terraform Labs’ New Move in SEC Action

ByGavin Cole

Oct 15, 2023

Terraform Labs is taking further steps to bolster its defense against charges by the U.S. Securities and Exchange Commission (SEC). The company has filed another motion against Citadel Securities, demanding the court force the market maker to release specific documents essential to Terraform’s case.

Citadel’s Alleged Role

Terraform Labs has brought to light new allegations in their ongoing legal tussle with the SEC. The developer of the Terra blockchain claims that the UST stablecoin’s untethering from its dollar peg was not a result of internal instability but a deliberate action by certain market players, including Citadel Securities.

UST’s depegging became a contentious issue, with the SEC pointing fingers at Terraform and its founder, Do Kwon, for purportedly making false claims about the token’s stability. The regulatory body took issue with the representations made about UST’s “mint/burn” mechanism’s ability to balance supply and demand, thereby maintaining its dollar value.

However, Terraform Labs has countered these allegations, placing the blame on an orchestrated effort to short the stablecoin, leading to its devaluation. According to Terraform, whispers in the crypto markets alluded to Ken Griffin, the founder of Citadel Securities, expressing interest in shorting UST. These rumors, Terraform asserts, coincided with the period the stablecoin experienced its fall.

With the courtroom as the battleground, Terraform Labs is pushing for the release of specific trading data from Citadel Securities. The company believes that this data is pivotal in vindicating them and proving that external forces, not internal flaws, were the catalyst of UST’s devaluation.

Terraform’s case draws on a specific piece of evidence: a screenshotted conversation from a Discord channel accessed after the UST’s depegging.

The trader relayed Griffin’s alleged intentions to aggressively short LUNA UST, drawing a parallel with the infamous actions of George Soros against the British pound.

Terraform Labs argue that withholding Citadel’s trading data would significantly hamper their defense. The urgency and insistence underscore the weight Terraform places on this data.

In their view, the data could potentially unveil a premeditated market manipulation, vindicating them from the SEC’s accusations of misrepresentation and laying the blame squarely at the feet of external market manipulations. 

Motion’s Transfer and Broader Implications

Terraform Labs has proposed a transfer of the motion to the Southern District of New York (SDNY), highlighting the ongoing SEC case against it is already under review in this jurisdiction, presided over by Judge Rakoff.

Terraform Labs underscores the procedural and managerial benefits, suggesting that allowing Judge Rakoff to oversee the motion would foster consistency and coherence in legal proceedings.

Judge Rakoff’s exploration into whether Terra’s two principal coins, LUNA and TerraUSD, classify as securities has heightened the case’s significance.

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