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- The SEC emphasized that Terraform’s arguments lack merit and misapply relevant laws and facts, indicating its intent to pursue legal action despite the defense’s stance.
- The SEC countered Terraform’s plea for reduced disgorgement in the civil case, where the firm was found liable by a jury.
Lawyers representing the U.S. Securities and Exchange Commission (SEC) have filed their response refusing Terrform Labs’ claims that the $40 billion fraud concerning the blow-up of its USDT stablecoin happened outside the US, and thus it doesn’t fall under the purview of the SEC jurisdiction, per the Crypto News Flash report.
In a filing dated May 6 in the U.S. District Court for the Southern District of New York, the SEC responded to Terraform’s plea for reduced disgorgement in the civil case, where the firm was found liable by a jury. SEC attorneys countered Terraform and co-founder Do Kwon’s stance, asserting that they never raised in court the argument regarding the SEC’s enforcement of extraterritorial application of federal laws for token offerings and sales conducted outside the United States.
In its filing, the SEC said: “Defendants’ arguments lack merit as they rely on a misapplication of the law and misstatement of the relevant facts”.
Even if the court were to acknowledge the legal foundation of Terraform’s argument, the SEC provided numerous instances of U.S.-based activities that could serve as grounds for enforcing securities laws. Notably, the argument also failed to address the undisclosed involvement of a U.S. firm, Jump, in the efforts to restore TerraUSD (UST) to its dollar peg.
SEC Seeks $3.6 Billion from Terraform
Terraform’s former communications head, based in California, allegedly posted misleading tweets at Kwon’s direction, falsely attributing UST’s recovery to its algorithm. Kwon himself promoted UST at a New York conference and engaged with U.S.-based media outlets.
The SEC sought $3.6 billion in disgorgement from Terraform and Kwon, along with $1.7 billion in ill-gotten gains from UST sales. Terraform proposed a $1 million civil penalty and no disgorgement in its proposed judgment filing, per the Crypto News Flash report.
Following a jury’s fraud verdict in April after a two-week trial, all parties are set to reconvene on May 22 for Judge Jed Rakoff to review proposed remedies.
Kwon was unable to attend the trial due to legal issues in Montenegro. In 2023, he was arrested and sentenced to four months in prison for using false travel documents. He remains in Montenegro while facing extradition requests from the U.S. and South Korea.
Terraform Labs announced its anticipation of a conduct injunction that would restrict certain activities within the United States. Consequently, the company is preparing to implement restrictions by preventing U.S. users from accessing specific products and features. Terraform Labs (TFL) conveyed frustration over this development, emphasizing its unwavering stance against geoblocking as a matter of principle, reported Crypto News Flash.
