Key Takeaways:
- Legal Challenge: Terraform Labs and its co-founder Do Kwon are contesting a $5.3 billion claim by the SEC, following a jury’s fraud verdict, arguing lack of concrete evidence and overreach of U.S. jurisdiction.
- Jurisdiction and Penalties: The defense highlights that the majority of activities and token sales occurred outside the U.S., proposing a significantly lower penalty of $1 million, compared to the SEC’s demand.
- Regulatory Implications: This case underscores major questions about the extent of U.S. regulatory authority over international crypto operations, with potential global implications for the crypto industry.
As Terraform Labs and its co-founder Do Kwon prepare for a critical hearing on May 22, the firm is contesting the U.S. Securities and Exchange Commission’s (SEC) staggering $5.3 billion claim for disgorgement, interest, and civil penalties.
This legal battle follows a jury verdict that found both the company and Kwon guilty of fraud.
Terraform Labs and co-founder Do Kwon, after being found liable for fraud by a New York jury last month, told a judge they shouldn’t have to pay the $5.3 billion fine requested by US regulators https://t.co/JBTlyPJ0Kb
— Bloomberg Crypto (@crypto) May 2, 2024
In their latest legal brief filed on May 1, Terraform’s attorneys argued that the SEC has not provided any concrete evidence linking the alleged fraudulent activities in the U.S. to the substantial financial losses cited.
The firm emphasizes that the majority of their token sales and activities took place outside the U.S., challenging the SEC’s reach and its basis for the multibillion-dollar disgorgement.
Furthermore, the legal team highlighted that any potential penalties should involve the Luna Foundation Guard (LFG), which was not a party in the lawsuit, thereby complicating the SEC’s claims.
The defense contends that imposing such extensive penalties and an “unlimited territorial injunction” would exceed the SEC’s legal boundaries.
Additionally, in a filing dated April 26, Terraform proposed a far more modest penalty of $1 million, arguing that the SEC’s demands were disproportionately high.
Kwon, who is currently detained in Montenegro pending potential extradition, supported this stance, asserting that his actions occurred entirely outside the U.S. and should not be subject to American jurisdiction or penalties.
The outcome of the upcoming court session, to be overseen by Judge Jed Rakoff, remains uncertain, especially with Kwon’s availability in question due to his ongoing legal issues abroad.
Terraform Labs' lawyers push back against SEC, argue token sales were mostly outside US https://t.co/tHowjE3rPT
— The Block (@TheBlock__) May 2, 2024
Terraform’s dispute with the SEC highlights significant questions about the scope of U.S. regulatory authority and the evidential requirements for such high-stake financial claims.
This development marks a pivotal moment in the ongoing scrutiny and regulatory challenges facing the crypto industry, with significant implications for international operations and U.S. regulatory reach.
About The Author
Fleming Airunugba, a seasoned Web3 and crypto content expert, leverages his deep understanding of blockchain technology to bring the latest and most impactful news to the crypto community.
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