Case 1:21-cv-08701 Document 1 Filed 10/22/21 Page 1 of 12

UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF NEW YORK

TERRAFORM LABS PTE LTD. and DO KWON,

Plaintiffs,
Case No. __________
v.

UNITED STATES SECURITIES AND

EXCHANGE COMMISSION,

Defendant.

COMPLAINT

           

attorneys, for their Complaint against Defendant United States Securities and Exchange

    

SUMMARY OF ACTION

1. This is a lawsuit under the Due Process Clause of the Fourteenth Amendment, the

Securities Exchange Act of 1934, 15 U.S.C. § 78a et seq     

Procedure Act, 5 U.S.C. § 500 et seq.         

              

               

      

PARTIES

2. TFL is a private company located at 80 Raffles Place, #32-01, UOB Plaza,

Singapore 048624, and is engaged in software development, computer programming, and related
 Case 1:21-cv-08701 Document 1 Filed 10/22/21 Page 2 of 12

activities. TFL designs, develops, and builds infrastructure for the next generation of decentralized

financial applications.

3. Mr. Kwon is a citizen and resident of the Republic of Korea and is domiciled in the

Republic of Korea.1 Mr. Kwon is the co-founder and Chief Executive Officer of TFL. Before co-

founding TFL, Mr. Kwon received a Computer Science degree from Stanford University, was a

             

wireless mesh network startup that built one of the most sophisticated decentralized applications

in real-             - Finance and

Venture Capital) in 2019.

4. Defendant SEC is (and was at all relevant times) an agency of the U.S. government

subject to the Administrative Procedure Act. See           

See 15 U.S.C. § 78d.

JURISDICTION AND VENUE

5. This action arises under the Due        

Jurisdiction therefore lies in this Court under 28 U.S.C. § 1331. See also 5 U.S.C. § 704.

6. Venue is proper in this Court under 28 U.S.C. § 1391(e) because this is an action

against an agency of the United States that resides in this judicial district and a substantial part of

the events or omissions giving rise to this action occurred in this judicial district.

1
By bringing this complaint to contest improper actions by the SEC, neither TFL nor Mr.
Kwon are submitting to the jurisdiction of the SEC or to jurisdiction of United States courts for
any purpose other than the adjudication of this case.

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BACKGROUND

7. TFL is the developer of Terra, a decentralized and open-source public blockchain

network, and the Mirror Protocol, a decentralized finance protocol built on Terra that is governed

by its stakeholder community, not by TFL or Mr. Kwon.

8.             

Mr. Kwon seeking his voluntary cooperation in connection with a formal order of investigation

styled In the Matter of Mirror Protocol, HO-       

              

or TFL, as it could not secure personal jurisdiction over Mr. Kwon or TFL consistent with the Due

Process Clause.

9. TFL and Mr. Kwon retained Dentons US LLP to represent them in connection with

              s notified the SEC

attorneys who had contacted Mr. Kwon that it represented TFL and Mr. Kwon and provided

contact information by email for the Dentons attorneys.

10. Dentons thereafter had multiple conversations with the SEC attorneys regarding the

 st, eventually leading to a negotiated agreement whereby Mr. Kwon would be

              

could not directly be used against him or TFL in a subsequent case. The agreement specifically

identified Dentons as counsel for Mr. Kwon and TFL.

11. The interview took place by Webex on Thursday, July 8, 2021, and lasted

approximately 5 hours. Mr. Kwon and two Dentons partners attended the call, and the two SEC

attorneys who had contacted Mr. Kwon (and their supervisor) attended for the SEC.

12. Subsequent to the interview of Mr. Kwon, the SEC requested that Mr. Kwon and

TFL voluntarily produce documents. The request (1) in part sought records that were not available

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and (2) was otherwise so broad and/or defective that, to the extent responsive documents might

exist, the requests had to be narrowed and clarified; among other things, the requests evidenced

              -

hour voluntary interview. Communications between the SEC and Dentons lawyers ensued for the

purpose of reaching common ground for the voluntary production of information responsive to the

 

13. During the course of these discussions, the Dentons lawyers also requested that the

SEC advise how the SEC viewed TFL and Mr. Kwon in connection with its investigation. In a

conversation on September 15, 2021, the SEC attorneys advised that they believed that some sort

of enforcement action was warranted against TFL and that any cooperation, and implementation

of remedial actions as to the Mirror Protocol, would result in a reduced financial sanction as part

of any consent agreement. The SEC lawyers were unwilling to specify anything about what they

expected regarding the amount of any financial sanction or any potential remedial actions or other

cooperation.

14. On the afternoon of September 17, Dentons contacted one of the SEC attorneys

           lieved TFL could do to

             

nature of any disposition (whether or not it might involve enforcement proceedings) be put to the

side to allow evaluation of what the SEC might be seeking as remediation for its concerns and to

determine if TFL was even capable of implementing or otherwise effectuating the type of

remediation that the SEC might be seeking, due to the decentralized nature of the Mirror Protocol.

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15. Attorney 1 advised Dentons that he would discuss the matter with his colleagues

and get back to Dentons. Unbeknownst to Dentons, TFL, or Mr. Kwon, Attorney 1 had earlier

that morning signed subpoenas for TFL and Mr. Kwon, who was visiting the United States.

16. On Septem           

cryptocurrency summit, Mr. Kwon was personally served by an SEC-hired private process service

company          with the

aforementioned subpoenas, seeking production of documents by TFL and Mr. Kwon and in-person

             

SEC subsequently sent copies of the subpoenas to Dentons as counsel for Mr. Kwon and TFL,

st               

the SEC was attempting to serve anyone by sending copies to Dentons.

17. The subpoenas were served on Mr. Kwon in public: Mr. Kwon was approached

by the process server as he exited an escalator at the Mainnet summit while on his way to make a

scheduled presentation that was not about the Mirror Protocol:

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18.             

      the Due Process Clause, and was intended to impermissibly secure

personal jurisdiction over Mr. Kwon and TFL in a way that was not legally available to the SEC.

19. SEC Rule of Practice 150(b) provides that       

upon a perso              

              

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   2            Cherokee

Nation of Oklahoma v. Babbitt, 117 F.3d 1489, 1499 (D.C. Cir. 1997).

20. After the SEC served plaintiffs, Dentons asked the SEC multiple times to provide

proof that the subpoenas were served in accordance with Rule of Practice 150(b), i.e., that the

Commission had issued an order permitting service upon Mr. Kwon, as required by its rules

applicable to persons represented by counsel. The SEC has provided no such proof.

21. Upon information and belief, the purpose of the SEC serving a subpoena upon Mr.

Kwon personally was, in violation of Rule 150(b), an unauthorized attempt to get personal

jurisdiction over him. In so doing, the SEC enforcement lawyers failed to follow their own rules

of practice and therefore the service upon Mr. Kwon is void ab initio. The mere fact that counsel

has been retained does not make counsel an agent for service of process on its client. See generally

Weston Funding, LLC v. Consorcio G Grupo Dina, S.A. de C.V., 451 F. Supp. 2d 585, 589 n.1

(S.D.N.Y. 2006).

22. Indeed, if the SEC lawyers thought otherwise they would have tried to serve

subpoenas through Dentons months ago. The SEC attorneys were well aware that TFL and Mr.

             

Kwon, and at no time asked Dentons lawyers whether it was authorized to accept service of

subpoenas. The unsolicited receipt of copies of subpoenas the SEC asserted it had served

             sdiction over TFL

and Mr. Kwon in connection with the SEC proceeding. Cf. Santos v. State Farm Fire and Cas.

2
As noted above, the SEC itself acknowledged, in a letter it wrote, that Dentons is counsel
for TFL and Mr. Kwon.

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Co., 902 F.2d 1092, 1094 (2d Cir. 1990)          

Farm had authorized its attorneys to accept servic     

23.              

              

above, the subpoenas here were not issued and served as authorized by law, and they are thus

               

or similar process or demand to the extent that it is found to be in accordance with law 

added). Thus, on this challenge, the Court cannot find the subpoenas valid because they were not

       

24. The subpoenas are also invalid as a means of securing jurisdiction over TFL.

               

jurisdiction over a corporation cannot be secured by serving a transiting officer or director. See,

e.g., Daimler AG v. Baumann, 571 U.S. 117 (2014); Martinez v. Aero Caribbean, 764 F.3d 1062

(9th Cir. 2014).

25.             

               

       herwise ordered by the Commission, all

formal investigative proceedings shall be non-       

           -  

    ch Mr. Kwon in public, and announce the purpose of his

approach, at a summit attended by more than 2,000 people was, at worst, an intentionally brazen

display meant to publicly intimidate and embarrass, and at best reckless, creating social media and

press speculation about the incident within minutes of the attempted service of process.

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COUNT I

(Arbitrary and Capricious Agency Action in Disregarding and Violating the APA and the
SEC’s Rules Regarding Service of Subpoenas)

26. TFL and Mr. Kwon repeat and reallege the allegations in paragraphs 1 through 25

as if fully set forth herein.

27.           

             

prescri      

28.            

provisions of this paragraph (c) shall apply to the issuance of subpoenas for purposes of

     e made pursuant to the provisions of § 201.150(b)

    

29.              

represented by counsel who has filed a notice of appearance pursuant to § 201.102, service shall

be made pursuant to paragraph (c) of this section upon counsel, unless service upon the person

             

30. As the SEC has acknowledged, Dentons lawyers provided them the information

               not

ordered by the Commission, SEC attorneys proceeded, in disregard of SEC rules, to serve the

subpoenas upon Mr. Kwon personally. TFL and Mr. Kwon have been, and will continue to be,

adversely affected and aggrieved by the SEC conduct set forth herein.

31.               

regarding service of process, and was therefore        

  

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32. TFL and Mr. Kwon are therefore entitled to relief under 5 U.S.C. §§ 702 and

706(2)(A) & (C).

COUNT II
(Arbitrary and Capricious Agency Action in Disregarding and Violating the SEC’s
Rules Regarding the Confidentiality of Formal Orders of Investigation)
33. TFL and Mr. Kwon repeat and reallege the allegations in paragraphs 1 through 25

as if fully set forth herein.

34. TFL and Mr. Kwon have been, and will continue to be, adversely affected and

aggrieved by the SEC conduct set forth herein.

35.               

regarding protecting the confidentiality of formal orders of investigation.

36. TFL and Mr. Kwon are therefore entitled to relief under 5 U.S.C. §§ 702 and

706(2)(A) & (C).

COUNT III
(Violation of the Due Process Clause of the Fourteenth Amendment)
37. TFL and Mr. Kwon repeat and reallege the allegations in paragraphs 1 through 25

as if fully set forth herein.

38. Due Process requires that an agency follow its own regulations and procedures,

particularly when those regulations themselves delineate a specific process for exceptions

          , including

the specifically prescribed process for setting those safeguards aside, the SEC deprived TFL and

Mr. Kwon of the protection those regulations were promulgated to provide.

39. TFL and Mr. Kwon have been, and will continue to be, adversely affected and

aggrieved by the SEC conduct set forth herein.

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 Case 1:21-cv-08701 Document 1 Filed 10/22/21 Page 11 of 12

40.   conduct was in violation of the Due Process Clause of the Fourteenth

Amendment.

41. TFL and Mr. Kwon are therefore entitled to relief under 5 U.S.C. §§ 702 and

706(2)(B).

PRAYER FOR RELIEF

WHEREFORE, Plaintiffs pray for an order and judgment:

a) Declaring that the Subpoenas were issued and served in violation of the APA

        null, void, and with no force or effect,

and in particular were not effective in securing jurisdiction over TFL or Mr.

Kwon;

b) Declaring that the SEC acted arbitrarily and capriciously within the meaning of

5 U.S.C. § 706(2)(A) in issuing and serving the Subpoenas;

c) Quashing the Subpoenas;

d) Declaring that the SEC acted arbitrarily and capriciously within the meaning of

5 U.S.C. § 706(2)(A) in failing to maintain the confidentiality of the Formal Order;

e) Issuing all orders necessary and appropriate to adjourn the compliance dates of

the Subpoenas in their entirety and to maintain the status quo pending the

conclusion of this case; and

f)          

bringing this action;

g) Awarding Plaintiffs such other and further relief as this Court deems just and

appropriate.

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 Case 1:21-cv-08701 Document 1 Filed 10/22/21 Page 12 of 12

Dated: October 22, 2021

New York, New York
Respectfully Submitted,

By: /s/ Douglas W. Henkin

Douglas W. Henkin
DENTONS US LLP
1221 Avenue of the Americas
New York, New York 10020-1089
Tel: (212) 768-6700
Fax: (212) 768-6800
douglas.henkin@dentons.com

Stephen J. Senderowitz
DENTONS US LLP
233 S. Wacker Drive
Chicago, Illinois 60606
Tel: (312) 876-8141
Fax: (312) 876-7934
stephen.senderowitz@dentons.com

Attorneys for Plaintiffs Terraform Labs PTE Ltd.

and Do Kwon

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