Judge J. Paul Oetken of the New York Southern District Court has denied a request to stay the action brought by the Securities and Exchange Commission (SEC) against Terraform Labs PTE, Ltd., and its co-founder and CEO, Do Kwon.

In February, the Judge issued an order directing the defendants to comply with investigative subpoenas for documents and testimony served on the defendants by the SEC in September 2021.

The subpoenas concern the SEC’s investigation into the Mirror Protocol. The SEC is investigating whether Terraform Labs, Kwon or others violated the federal securities laws by, among other things, not registering the offer or sale of securities, selling security-based- swaps outside of a national security exchange, acting as an unregistered broker or dealer, or engaging in securities transactions by an unregistered investment company.

Based on its ongoing investigation, the SEC has reason to believe that Terraform Labs and Kwon participated in the creation, promotion, and offer to sell mAssets and MIR tokens to U.S. investors. SEC staff served both Terraform Labs and Kwon with investigative subpoenas requiring the production of certain documents and compelling Kwon’s testimony.

Despite numerous attempts to negotiate with counsel, Terraform Labs and Kwon have refused to produce any documents and Kwon has failed to comply with the testimonial obligations.

Respondents have requested a stay pending appeal, which the SEC opposed. The Court has sided with the SEC, according to an order issued on March 1, 2022.

In determining whether to grant a stay pending appeal, courts consider (1) likelihood of success on the merits, (2) irreparable injury absent a stay, (3) substantial prejudice to the other parties interested in the proceeding, and (4) the public interest.

Upon consideration of these factors, the Court concluded that Respondents have not met their burden of showing that a further stay is warranted. An extended delay of enforcement of the subpoenas risks impeding the SEC’s Mirror Protocol investigation and the associated public interest in the Commission’s enforcement functions.

Accordingly, the Court denied Respondents’ request for a further stay pending appeal.