Terraform Labs Seeks Citadel Securities' Trading Data amid SEC Lawsuit

Terraform Labs Pte. Ltd. (Movant), has filed a motion to compel market maker Citadel Securities, LLC to divulge crucial trading data. This data, pertinent to a third-party subpoena, is deemed critical for Terraform Labs' defense against a lawsuit initiated by the U.S. Securities and Exchange Commission (SEC). The lawsuit, presided over by the U.S. District Court for the Southern District of New York, delves into allegations of market destabilization due to purported intentional actions by certain market players to "short" and consequently cause the TerraUSD (UST) stablecoin to depeg from its $1 benchmark.

Disputing the SEC's allegations, Terraform Labs argues that the market instability did not stem from the algorithm underpinning UST but was a result of orchestrated efforts by third-party market participants to manipulate the stablecoin's value. The significant focus is on the trading activities around the May 2022 Depeg event, during which UST lost its peg to the dollar, crashing from $1 to $0.02. In light of this, Terraform Labs significantly narrowed down its subpoena requests, centering on the most critical trading data pertinent to this event.

Citadel Securities' response was to provide a single document under the ongoing Confidentiality Order while refusing any further cooperation. The document in question pertains to trading strategies involving Terra-Native Tokens or Terra Financial Instruments between March 1, 2022, and May 31, 2022. Terraform Labs believes that unearthing this data is pivotal to understanding the May 2022 Depeg’s dynamics, examining Citadel Securities' involvement, and whether there was a coordinated endeavor to short UST.

The motion filed accentuates the necessity for Citadel Securities to disclose the limited trading strategy information, urging the court to either grant this motion or transfer the matter to Hon. Jed S. Rakoff, the presiding judge in the Underlying Action. This motion trails an array of subpoenas issued to various market players, including Citadel Entities controlled by renowned short seller, Ken Griffin.

The crux of the matter extends to allegations by the SEC that Terraform Labs, spearheaded by founder Do Kwon, engaged in a multi-billion dollar crypto asset securities fraud. The SEC criticizes Terraform Labs for purported misrepresentations regarding the stability of UST and the effectiveness of its algorithm in maintaining the $1 price peg.

In a secondary narrative, the motion reveals discord chats hinting at Ken Griffin's intention to short UST around May 2022, amplifying the discord between Terraform Labs and Citadel Securities. Despite Citadel Securities' denial of trading TerraUSD in May 2022, as reported by Forbes, Terraform Labs persists in asserting that the requested documents are indispensable for a robust defense.

In a bid to expedite a favorable resolution, Terraform Labs has proposed transferring this matter to the U.S. District Court for the Southern District of New York if the court declines to compel Citadel Securities. The ongoing litigation underscores the nuanced and complex nature of cryptocurrency-related cases, shedding light on the potential manipulative practices within digital asset markets.