Do Kwon, TFL Now Blame Citadel Securities For Terra Collapse

Do Kwon and his blockchain firm Terraform Labs (TFL) blamed American market-making firm Citadel Securities for its alleged role in the spectacular collapse of Terra, which resulted in the loss of billions of dollars in investment.

Kwon and TFL are now pointing fingers at Citadel Securities for allegedly executing a "concerted, intentional effort" to cause TFL's so-called algorithmic stablecoin TerraUSD (UST) to de-peg from the dollar in May 2022.

Earlier this week, the blockchain firm filed a motion in the U.S. District Court in the Southern District of Florida, urging the court to ask Citadel Securities to provide documents containing its trading actions in May last year, the same period when the UST traded from $1 to $0.2.

"Pursuant to Federal Rule of Civil Procedure 26 and 45, Movant Terraform Labs Pte. Ltd. ("Movant") respectfully submits its motion to compel Citadel Securities, LLC ("Citadel Securities") to produce certain data responsive to a third-party subpoena that is vital to Movant's defense in a complex cryptocurrency action brought by the U.S. Securities and Exchange Commission (the "SEC") in the U.S. District Court for the Southern District of New York, SEC v. Terraform Labs, PTE LTD, and Do Hyeong Kwon, Case No. 1:23-cv-01346 (the "Underlying Action")," the court filing read.

The motion also claimed that "publicly available evidence" suggests that Ken Griffin, the head of Citadel Securities, intended to short the stablecoin around the time of the UST depeg in May 2022.

"There is publicly available evidence suggesting that the head of the Citadel Entities, Ken Griffin, intended to short UST at or about the time of the May 2022 depeg," the motion read.

Terraform Labs, in its latest motion, argued that the documents would be used for its defense in the lawsuit filed by the SEC in February 2022. The financial regulator accused Kwon and TFL of having a hand in "orchestrating a multi-billion dollar crypto asset securities fraud."

"This defense will be substantially impaired if Citadel Securities is successful in withholding this limited information," the motion noted.

"This frivolous motion is based on false social media posts and ignores information we already provided confirming we had no role whatsoever in this matter," a spokesperson for Citadel Securities to International Business Times via email.

Citadel also filed a response to the initial subpoenas and told TerraformLabs, "Citadel has no trading in the Terra Financial Instruments or the Terra-Native Tokens and therefore has no responsive documents."

Last month, Kwon and TFL's legal team submitted a petition asking a federal court to reject the request made by the SEC to depose the crypto executive before American authorities.

"The Court should deny the SEC's motion for the simple reason that it is currently impossible for Mr. Kwon to appear for a deposition in the United States," the Wednesday court filing read, adding, "An order mandating something that is impossible serves no practical purpose and risks undermining judicial authority because the Court could not mandate compliance."

Kwon's legal team argued that the SEC's request to question the TFL co-founder in the U.S. before Oct. 13 is impossible because he is currently detained in Montenegro without any scheduled release or date of extradition.

(Updated on Oct. 16 with comments from Citadel spokesperson.)