In a flipping of the script, a leading cryptocurrency project and its co-founder are suing the Securities and Exchange Commission (SEC).

The lawsuit was filed Friday by Terraform Labs, the company behind the Terra decentralized finance protocol, and its co-founder Do Kwon, who confirmed in the filing that he and his company were served with SEC subpoenas at last month's Messari crypto conference in New York City. Terra's Luna cryptocurrency is currently the 11th largest by market cap.

According to the lawsuit filed on Friday, Kwon and Terraform Labs are contesting the subpoenas issued by the SEC following a dialogue concerning Mirror Protocol, a decentralized finance protocol built on Terra, which allows users to trade "synthetic" assets that track the price movements of real assets, such as shares of Netflix or Tesla. The SEC has increasingly stepped up its pressure on crypto firms potentially offering unregistered securities. CoinDesk first reported the lawsuiit, which seeks to quash the subpoenas.

But the company's lawsuit not only disputes the subpoena and requested testimony from Kwon, a South Korea citizen and resident, but it also claims the SEC violated its own rules and hired an outside private process service company to deliver the subpoena at a crowded conference as a means to "publicly intimidate and embarrass."

"In addition to violating its rules regarding service, the SEC's conduct here violated its rules requiring it to keep formal orders of investigation confidential," the suit claims.

The filing also documents a July 8, five-hour Webex call during which Kwon answered questions from SEC attorneys about how Terra's Mirror Protocol functions. A subsequent request by the SEC for documents that the company said were either too broad in scope or did not exist "evidenced the SEC's misunderstanding of the nature of the Mirror Protocol itself."

As Yahoo Finance previously documented, Terra is one of the leading decentralized finance (DeFi) projects. While the SEC's inquiry appears to focus in on Terra's synthetic asset-focused Mirror Protocol, the project also powers a decentralized stablecoin that differs from cash-backed competitors. Rather than storing cash and assets as collateral, Terra's stablecoin, UST, is backed by its own cryptocurrency, Luna. As money has flowed into UST, the price of Luna (LUNA1-USD) has skyrocketed — it's now up more than 6,200% on the year.

Terraform Labs co-founder Do Kwon is featured to speak at Yahoo Finance's All Markets Summit: The Path Forward where he will be joined by Ava Labs President John Wu for a panel on DeFi moderated by Yahoo Finance's Zack Guzman at 12:40 p.m. EST.

Zack Guzman is an anchor for Yahoo Finance Live as well as a senior writer covering crypto, cannabis, startups, and breaking news at Yahoo Finance. Follow him on Twitter @zGuz.

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