Crypto entrepreneur Do Kwon’s lawyers say a US regulator’s lawsuit accusing him and Terraform Labs Pte of securities fraud is unfounded, in part, because the stable coin at issue is a currency, not a security.

US law prohibits regulators “from using federal securities law to assert jurisdiction over the digital assets in this case”, Kwon’s lawyers said Friday in a request to a judge to dismiss the lawsuit.

The US Securities and Exchange Commission sued Kwon and the company he co-founded, Terraform Labs, in February, accusing them of fraud related to the collapse of the TerraUSD stablecoin.

The agency said the company illegally offered unregistered securities and carried out a scheme that wiped out at least US$40 billion worth of market value.

Kwon’s lawyers say the lawsuit is an improper attempt by the SEC to regulate cryptocurrencies using antiquated laws, even though Congress, the executive branch and the agency itself can’t agree on what qualifies as a “security”.

“The SEC’s improper assertion of power here by trying to shoehorn all cryptocurrencies into its definition of a ‘security’ fails,” the lawyers said in their filing.

Kwon was arrested in late March in Montenegro. The US and South Korea, where he also faces fraud charges, are both seeking his extradition. A court in Montenegro’s capital of Podgorica on Friday approved Kwon’s continued detention after he was indicted by local prosecutors, accused of forging travel documents to fly to Dubai.

The case is Securities and Exchange Commission v Terraform Labs, PTE LTD and Do Hyeong Kwon, 1:23-cv-01346, US District Court, Southern District of New York (Manhattan).

  - Bloomberg