BANKRUPTCY JUDGE SIGNS OFF ON ORDER ALLOWING TERRAFORM LABS TO SUBPOENA FTX ENTITIES

Last updated: June 20, 2025, 01:37 | Written by: Samson Mow

The tangled web of cryptocurrency collapses continues to unravel, with a new twist involving two of the industry's most high-profile implosions: Terraform Labs and FTX.In a significant development, a U.S. bankruptcy judge has granted Terraform Labs permission to subpoena FTX Trading and FTX US, potentially unlocking crucial evidence that could aid Terraform Labs in its defense against fraud charges brought by the Securities and Exchange Commission (SEC).This order, signed by Judge John Dorsey of the U.S.Bankruptcy Court for the District of Delaware, marks a pivotal moment in both the Terraform Labs and FTX bankruptcy proceedings, intertwining their fates even further.The implications of this decision are far-reaching, potentially shedding light on the complex financial dealings that led to the downfall of both entities and offering a glimpse into the interconnectedness of the crypto market.This subpoena could be the key to unraveling the truth behind Terraform Labs' claims of external attacks, or it may further expose internal mismanagement. Judge John Dorsey from the U.S. Bankruptcy Court has sanctioned Terraform Labs request to subpoena vital documents, potentially aiding its defense against fraud charges made by the SEC in the ongoing FTX bankruptcy case.The coming months will be crucial in determining the impact of this order and its role in shaping the future of cryptocurrency regulation and accountability.

The Green Light: Terraform Labs Granted Subpoena Power

On July 31, a pivotal order was signed, authorizing Terraform Labs to subpoena crucial information from FTX Trading and FTX US.This decision by Judge John Dorsey represents a major win for Terraform Labs, allowing them to potentially access internal FTX documents and communications that could be vital in their defense against the SEC's fraud allegations.The core issue lies in Terraform Labs' claim that the collapse of its algorithmic stablecoin, TerraUSD (UST), and its associated governance token, LUNA, wasn't solely due to internal failings but rather the result of a coordinated attack by short-sellers.

Unveiling Potential External Attacks

Terraform Labs has argued that the de-pegging event that led to the collapse of UST was orchestrated, hinting at the possible involvement of Alameda Research, the trading firm closely associated with FTX. A judge in the bankruptcy case for defunct crypto exchange FTX has issued an order allowing Terraform Labs to subpoena information that could be used in its case brought by the United States Securities and Exchange Commission (SEC).If Terraform Labs can successfully demonstrate that external forces deliberately targeted UST and LUNA, it could significantly weaken the SEC's case against them, potentially shifting the blame away from internal mismanagement and towards market manipulation.Obtaining internal communications, trading records, and other documents from FTX could provide the concrete evidence needed to support this claim. Bankruptcy judge signs off on order allowing Terraform Labs to subpoena FTX entities. PANews., .This is not to suggest that FTX or Alameda Research are guilty, but to give context to the reason Terraform Labs made the request.

The Scope of the Subpoena

The exact scope of the subpoena remains confidential, but it is likely to encompass a broad range of information, including:

Trading records related to UST and LUNA
Internal communications between FTX employees and Alameda Research
Documents pertaining to FTX's risk management practices
Information about any alleged short-selling activity targeting UST and LUNA

Successfully navigating the bankruptcy process and executing these subpoenas will be critical for Terraform Labs.The information sought could dramatically shift the narrative surrounding its collapse.

Terraform Labs' Defense Strategy: Blame the Short Sellers?

At the heart of Terraform Labs' defense is the assertion that the failure of its algorithmic stablecoin and governance token was not a consequence of internal mismanagement but rather the result of an orchestrated attack by short sellers. U.S. Bankruptcy Judge Brendan Shannon approved Terraform's bankruptcy plan at a hearing in Wilmington, Delaware, calling it a welcome alternative to further litigation over the investorThis strategy aims to deflect blame from Terraform Labs' own actions and place it on external actors allegedly manipulating the market. Cointelegraph By Turner Wright A judge in the bankruptcy case for defunct crypto exchange FTX has issued an order allowing Terraform Labs to subpoena information that could be used in its case brought by the United States Securities and Exchange Commission (SEC). In a July 31 filing in U.S. Bankruptcy Court for the District of [ ]The success of this strategy hinges on proving the existence and impact of such an attack.Let's examine the details of the defense strategy.

Allegations of Market Manipulation

Terraform Labs has specifically suggested that the failures of UST and LUNA were the results of an attack from short sellers, potentially involving Alameda Research. Learn how a bankruptcy judge has allowed Terraform Labs to subpoena FTX entities with Crypto.com. Discover the difference between web 1.0, web 2.0, and web 3.0 on Brainly. Bankruptcy judge signs off on order allowing Terraform Labs to subpoena FTX entitiesThis claim implies that these entities intentionally destabilized the market for UST and LUNA, leading to their eventual collapse. Terraform Labs claimed that the failures of its algorithmic stablecoin and governance token were the result of an attack from short sellers, potential Bankruptcy judge signs off on order allowing Terraform Labs to subpoena FTX entities - PANewsThis claim is pivotal to their defense, as it offers an alternative explanation for the downfall of their tokens, separating it from internal failings.

The Importance of Evidence

The subpoena of FTX entities is directly tied to this defense strategy. A judge in the bankruptcy case for defunct crypto exchange FTX has issued an order allowing Terraform Labs to subpoena information that could be used in its caseTerraform Labs believes that FTX, due to its involvement with Alameda Research, may possess information that substantiates their claims of market manipulation. In a July 31 filing in U.S. Bankruptcy Court for the District of Delaware, Judge John Dorsey said Terraform Labs was permitted to serve FTX Trading and FTX US with subpoenas aimed at gathering evidence the firm could use in its defense from allegations of fraud by the SEC.By obtaining access to FTX's internal records, they hope to uncover evidence of coordinated short-selling activity, communications between traders discussing the attack, and other information that could prove the existence of a deliberate effort to undermine UST and LUNA.

Challenges and Implications

While this defense strategy offers a potential path to acquittal, it also presents several challenges:

Proving Causation: Even if Terraform Labs can demonstrate that short-selling activity occurred, they must also prove that this activity was the direct cause of the UST and LUNA collapse.
Potential for Backfire: If the evidence gathered from FTX does not support their claims, it could backfire and strengthen the SEC's case against them.
Credibility: The company needs to convince the judge that its claims are credible.

This strategy can only be successful if it is backed by solid evidence, and that is why the subpoena of FTX entities is so important.

FTX's Bankruptcy Woes: A Tangled Web of Legal Battles

FTX, once a leading cryptocurrency exchange, is currently embroiled in its own complex bankruptcy proceedings following its dramatic collapse in November 2022. Last month, Terraform Labs, the company behind the Terra ecosystem, requested the court for permission to subpoena FTX Trading and FTX.US as part of its efforts to gather evidence in its fraud defense. On July 31, U.S. Bankruptcy Judge John Dorsey signed off on an order that allowed Terraform Labs to do just that.The company's downfall was triggered by a liquidity crisis and allegations of widespread fraud, leading to the arrest and indictment of its founder, Sam Bankman-Fried.Let's delve into the challenges that FTX faces during the bankruptcy process.

Navigating Bankruptcy Court

The FTX bankruptcy case is one of the largest and most complicated in recent history, involving billions of dollars in missing funds and a vast network of interconnected entities. In its defense claim submitted on July 19, Terraform Labs suggested that the failure of its algorithmic stablecoin and governance token was not due to internal mismanagement but instead the result of an organized attack from short-sellers. It further hinted at the possible involvement of Alameda Research in this supposed assault. BankruptcyThe bankruptcy proceedings are being overseen by Judge John Dorsey, the same judge who approved Terraform Labs' subpoena request. Report this post Bankruptcy judge signs off on order allowing Terraform Labs to subpoena FTX entities blockchain dAPPs smartcontracts bitcoin ETH BNB StablecoinsThis interconnectedness highlights the intertwined nature of the crypto industry and the potential for one company's downfall to have ripple effects throughout the market.

Impact of the Subpoena on FTX

The subpoena from Terraform Labs adds another layer of complexity to the already challenging FTX bankruptcy proceedings. Terraform Labs claimed that the failures of its algorithmic stablecoin and governance token were the result of an attack from Bankruptcy judge signs off on order allowing Terraform Labs to subpoena FTX entities - XBT.MarketThe company is now obligated to comply with the subpoena and provide requested documents, which could potentially divert resources and delay the bankruptcy process. In a recent development, a judge in the bankruptcy case for defunct crypto exchange FTX issued an order allowing Terraform Labs to subpoena information that could be used in its case brought by the United States Securities and Exchange Commission (SEC).Additionally, the subpoena could expose sensitive information about FTX's internal operations and dealings with Alameda Research, potentially leading to further legal complications.

Potential for Cooperation or Conflict

It remains to be seen whether FTX will cooperate fully with Terraform Labs' subpoena or attempt to resist it.On one hand, cooperating could help FTX demonstrate transparency and goodwill in the eyes of the court.On the other hand, complying with the subpoena could expose them to further scrutiny and potential liability. Bankruptcy judge signs off on order allowing Terraform Labs to subpoena FTX entities PANews ｜ Terraform Labs claimed that the failures of its algorithmic stablecoin and governance token were the result of an attack from short sellers, potentially involving Alameda Research.How FTX navigates this situation will likely depend on the advice of its legal team and the potential risks and rewards involved.

SEC's Fraud Allegations Against Terraform Labs

The SEC's lawsuit against Terraform Labs forms the backdrop for the subpoena request. A judge in the bankruptcy case for defunct crypto exchange FTX has issued an order allowing Terraform Labs to subpoena information that could be used inThe SEC alleges that Terraform Labs and its founder, Do Kwon, defrauded investors through the sale of unregistered securities and making misleading statements about the stability and functionality of UST. In a July 31 filing in the U.S. Bankruptcy Court for the District of Delaware, Judge John Dorsey said Terraform Labs was permitted to serve FTX Trading and FTX US with subpoenas aimed atThese allegations are severe and, if proven, could result in significant penalties and reputational damage for Terraform Labs. Judge Brendan Shannon of the US Bankruptcy Court for the District of Delaware on Thursday said he d enter an order confirming Terraform s liquidation plan. His ruling comes three months after the company agreed to pay $4.47 billion to resolve a US Securities and Exchange Commission lawsuit related to the firm s 2025 collapse.Let's examine the central points of the SEC's allegations.

Key Allegations

The SEC's complaint alleges that Terraform Labs:

Offered and sold unregistered securities in the form of UST and LUNA.
Misled investors about the stability of UST, claiming it was a safe and stable asset when it was, in reality, highly volatile and susceptible to de-pegging.
Made false claims about the integration of LUNA with a popular Korean mobile payment app, implying that it had widespread adoption and utility.
Conducted manipulative trading activity to artificially inflate the price of LUNA.

These allegations paint a picture of a company that allegedly misled investors about the risks associated with its products, leading to significant financial losses when the ecosystem collapsed.

Potential Consequences

If the SEC prevails in its lawsuit, Terraform Labs could face:

Significant financial penalties, including fines and disgorgement of ill-gotten gains.
An injunction preventing them from offering or selling securities in the future.
Reputational damage that could make it difficult for them to operate in the cryptocurrency industry again.

The stakes are high for Terraform Labs, and the subpoena of FTX entities is a critical part of their strategy to defend against these serious allegations.

The Role of Bankruptcy Judges in Crypto Cases

The Terraform Labs case highlights the increasing involvement of bankruptcy judges in the complex world of cryptocurrency.These judges are tasked with navigating novel legal issues, understanding intricate financial models, and making decisions that can have far-reaching consequences for the industry.The role of the bankruptcy judge is extremely important in the case of Terraform Labs.Let's examine some of the responsibilities of the judge.

Navigating Complex Legal Issues

Cryptocurrency cases often involve novel legal issues that traditional bankruptcy law was not designed to address.For example, determining the ownership of digital assets, classifying cryptocurrencies as securities or commodities, and resolving disputes over decentralized autonomous organizations (DAOs) all require judges to apply existing legal principles in new and creative ways.

Balancing Competing Interests

Bankruptcy judges must also balance the competing interests of various stakeholders, including creditors, investors, and the debtors themselves.In the case of Terraform Labs, Judge John Dorsey had to weigh the potential benefits of allowing the subpoena against the potential burden it would place on FTX's bankruptcy proceedings.

Ensuring Fairness and Transparency

Ultimately, bankruptcy judges play a critical role in ensuring fairness and transparency in the resolution of cryptocurrency insolvencies.Their decisions can shape the future of the industry and help establish legal precedents for how these complex cases are handled in the future.

Impact on the Crypto Market: A Ripple Effect?

The collapse of both Terraform Labs and FTX sent shockwaves through the cryptocurrency market, contributing to a period of significant volatility and uncertainty.The legal proceedings surrounding these collapses, including the Terraform Labs subpoena of FTX entities, continue to have a ripple effect on the industry.The subpoena case could lead to tighter restrictions on cryptocurrency regulation.

Increased Scrutiny

The high-profile nature of these cases has drawn increased scrutiny from regulators and lawmakers around the world.Governments are now more likely to take a closer look at the cryptocurrency industry and implement stricter regulations to protect investors and prevent future collapses.

Investor Confidence

The loss of confidence in the cryptocurrency market that happened as a result of the Terraform Labs and FTX collapses affected investor behavior.It can take the market a long time to regain that trust.The Terraform Labs subpoena case is essential for that to happen.

Industry Consolidation

The collapses of Terraform Labs and FTX may accelerate the trend of industry consolidation, with larger, more established companies acquiring smaller, struggling ones.This could lead to a more centralized and regulated cryptocurrency market in the long run.

Looking Ahead: What's Next for Terraform Labs and FTX?

The legal battles surrounding Terraform Labs and FTX are far from over.The coming months will be critical in determining the fate of both companies and the broader implications for the cryptocurrency industry.Here are some key developments to watch for:

FTX's Bankruptcy Proceedings

The FTX bankruptcy proceedings will continue to unfold, with ongoing efforts to recover assets and compensate creditors.The outcome of these proceedings will have a significant impact on the future of the company and its stakeholders.

Terraform Labs' Defense Against the SEC

Terraform Labs will continue to mount its defense against the SEC's fraud allegations, utilizing the information gathered from FTX and other sources.The success of this defense will determine whether the company can avoid significant penalties and continue to operate in the cryptocurrency industry.

Regulatory Developments

Governments around the world will continue to develop and implement regulations for the cryptocurrency industry, based on the lessons learned from the Terraform Labs and FTX collapses.These regulations will shape the future of the industry and determine the extent to which it can continue to innovate and grow.

Conclusion: Unraveling the Crypto Web

The bankruptcy judge's decision to allow Terraform Labs to subpoena FTX entities represents a critical juncture in the ongoing saga of two of the cryptocurrency industry's most prominent collapses.This move has the potential to unlock crucial evidence that could shape the outcome of both the SEC's fraud case against Terraform Labs and the complex bankruptcy proceedings of FTX.Whether this subpoena will truly illuminate the alleged market manipulation or simply reveal further complexities in the cases, only time will tell.For now, investors, regulators, and industry participants alike remain vigilant, acutely aware of the need for accountability and stronger protections within the cryptocurrency space.The Terraform Labs subpoena case will impact regulatory decisions and investor protection policies.It is imperative that these cases are resolved in a way that fosters transparency and accountability within the cryptocurrency industry.