Terraform Labs’s attorneys asserted that the SEC lacks evidence that the organization has a “foreseeable substantial effect” in the US.
A New York jury in March 2024 indicted Terraform Labs and its co-founder Do Kwon on fraud charges, with U.S. regulators demanding a $5.3 billion penalty.
However, these allegations have been refuted by Terraform’s attorneys, who assert that the company sold the majority of UST stablecoins outside of the United States.
Terraform Refute SEC Charges
Terraform and Kwon were convicted of fraud following a two-week trial on April 5. Subsequently, the SEC advocated for a significant penalty, which, if levied, would be the most substantial in the cryptocurrency sector’s history and signify heightened regulatory oversight by United States authorities.
The SEC underscored in a recent filing the court’s imperative to unequivocally communicate its zero-tolerance policy towards such conspicuous misconduct.
Terraform and Kwon were charged by the SEC with amassing “ill-gotten gains” over $4 billion via unregistered token transactions, which included LUNA and UST. UST, an algorithmic stablecoin developed by Terraform to preserve parity with the U.S. dollar, experienced a catastrophic failure in 2022, leading to an enormous depreciation of $40 billion in market value.
Nevertheless, Terraform’s legal representatives countered in a filing dated Wednesday, May 1, that the majority of token sales took place outside the United States and that the SEC had not presented any evidence connecting the limited U.S. activities of Terraform and Kwon to substantial losses, much less the billions of dollars sought in disgorgement by the SEC.
Wednesday, Kwon’s legal team argued in a separate filing that the SEC had failed to establish that his participation with Terraform would have a substantial and predictable effect in the United States. The attorneys stated:
“Mr. Kwon’s role in the conduct that forms the basis of the SEC’s requested judgment was performed entirely abroad, in Korea and Singapore”.
Terraform Labs filed a document last week arguing that the SEC’s $5.4 billion demand is unjustified. At the time, Terraform Attorneys advised that a $1 million sanction would have been more suitable.
The director of the SEC Enforcement Division, Gurbir Grewal, expressed his approval of the verdict and underscored the criticality of adherence to regulations within the cryptocurrency sector.
The author emphasized the substantial financial losses incurred by investors due to Terraform Labs’ activities, citing the case as a noteworthy illustration.
According to Grewal, the SEC plays a crucial role in safeguarding the interests of retail investors and the market. As a deterrent, the ruling is anticipated to warn other crypto entities against deceptive practices.
