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- Do Kwon has filed a motion in court seeking to dismiss the SEC’s ludicrous $5.3 billion proposed fines and penalties, claiming that they fail to meet the precedent set by the SEC v. Morrison lawsuit.
- Kwon’s team proposed that he pay $1 million instead, arguing that only a few people who lost money on LUNA and UST were from the SEC’s jurisdiction in the US.
As the world awaits Binance founder Changpeng Zhao’s sentencing in a Seattle courtroom today, another fallen crypto titan is fighting a legal battle of his own. Do Kwon, the man behind the failed LUNA and UST crypto projects, filed a motion recently seeking to lower the SEC’s proposed penalties at a New York court.
Kwon was found liable for fraud earlier this month alongside Terraform Labs, his company and the architects of the Terra ecosystem, as Crypto News Flash reported. The SEC followed this up with a filing in which it proposed $4.2 billion in penalties, $545 million in prejudgment interest and $100 million in civil penalties from Kown. It also requested $420 million in civil penalties from Terraform Labs.
Kwon’s legal team has criticized the SEC’s proposals in a motion filed in the Southern District of New York. Part of the motion stated:
The SEC has failed to prove that it is entitled to the expansive injunction and monetary sanctions it seeks against TFL. Among other failures of proof, the SEC has submitted no evidence that more than a small number of sales of LUNA, UST, or MIR by TFL or TLL, were domestic as required by Morrison.
Morrison refers to a precedent-setting lawsuit back in 2010 that pit the National Australia Bank against a US company, HomeSide Lending. The bank lost over $2 billion to the company and sued it for securities fraud; the case went all the way to the US Supreme Court. However, the court ruled that HomeSide couldn’t be held accountable for securities fraud in cases involving foreign investors.
This precedent has been used several other times by companies that mainly dealt with foreign investors, and Kwon’s team is seeking to use it to chop off billions in proposed penalties.
Do Kwon Fights Back Against the SEC
In his motion, Kwon argued that, at best, the SEC had only established isolated violations of the US securities laws by himself or his company. This puts the lawsuit in the same category as Morrison, making the proposed $5.3 billion settlement outrightly preposterous.
The motion further launched a preemptive strike against the SEC should it attempt to dismiss the significance of the Morrison precedent. Kwon points out that the regulator has used this precedent several times in its cases against other crypto firms.
The motion states:
The SEC’s failure to even discuss Morrison is no mere oversight, as the SEC (including at least one of the attorneys in this case) has briefed Morrison issues in other crypto-related enforcement actions.
The motion concludes that “the Court should not grant any injunctive relief or disgorgement, and should impose at most a $1 million civil penalty against TFL.”
If Kwon succeeds with this motion and nixes over $5.3 billion from the SEC’s proposed settlement, it will be a significant victory not only for him but for the entire sector at a time when the agency has been throwing around ludicrous numbers in settlements with crypto firms.
