United States Securities and Exchange Commission v. Terraform Labs Pte Ltd

In United States Securities and Exchange Commission v. Terraform Labs Pte Ltd, the appellant challenged a District Court ruling that required compliance with investigative subpoenas for documents from the company and testimony from the CEO. The appellant argued that the District Court erred because:

• The SEC failed to follow its own Rules of Practice when it personally handed the subpoena to the CEO when he was present in New York.
• The court lacked personal jurisdiction over the CEO because he did not have sufficient contacts with the United States.

The SEC was investigating the appellant for allegedly selling unregistered securities through its sale of digital assets referred to as mAssets that “mirror” the price of U.S. securities and for acting as an unregistered broker-dealer. The appellant was selling these financial instruments to U.S. residents but had not registered anything with the SEC.

The SEC tried to serve the companies with a subpoena. The appellant refused to comply with a subpoena, challenging the method in which they were served and the SEC’s ability to assert jurisdiction over the CEO. The district court ruled in favor of the SEC.

The Second Circuit held that the SEC had the right to personally serve the CEO. The appellant had argued that personal service violated the SEC’s rules of practice because they were represented by counsel. Among other things, the court explained that there was no legal precedent that would have prevented the agency from serving the CEO. Moreover, the SEC had emailed a copy of the subpoena to the appellant’s counsel. The Second Circuit explained that the appellant’s position would lead to an “absurd” result where the company could refuse service by simply not allowing its counsel to receive service but then claiming that the CEO could not be served personally.

With regard to the argument about personal jurisdiction, the court ruled for the SEC. The court found that the appellant met the test for sufficient contacts with the forum for personal jurisdiction. 

Specifically:

• The appellant purposely availed themselves of the forum by conducting activities in the United States when they offered their mAssets here
• The SEC’s case arose out of the appellant’s activities in the United States
• There was nothing unreasonable about the way that the subpoena was served on the CEO

The Second Circuit declined to rule on the appellant’s arguments about whether their mAssets were securities, limiting its holding to whether the SEC had the legal right to enforce its subpoena.