By
Steve Muchoki
May 17th, 2024
Do Kwon’s lawyers contend the court should not grant any injunctive relief or disgorgement and should impose at most a $1 million civil penalty against Terraform Labs.
The ongoing legal battle between Terraform Labs, the firm responsible for the algorithmic stablecoin UST, and the U.S. Securities and Exchange Commission (SEC) continues to intensify. In late March 2024, a New York jury found Terraform and its co-founder Do Kwon guilty of fraud concerning the sale of LUNA and UST tokens.
The verdict paved the way for substantial penalties, with the regulatory body seeking an unprecedented $5.3 billion fine. However, Terraform Labs refuses to comply and challenges the charges, setting the stage for a prolonged legal battle.
Terraform’s lawyers argue that the SEC has exceeded its authority. They state that most token sales occurred outside the US, beyond the SEC’s jurisdiction. Furthermore, they highlight the lack of clear evidence linking Terraform’s limited US activity to the substantial investor losses claimed by the SEC.
Do Kwon’s lawyers contend that his activities with Terraform Labs were mainly conducted in Korea and Singapore. These arguments challenge the SEC’s assertion that Kwon’s work significantly impacted the United States. According to Terraform’s legal defence strategy, the SEC lacks authority to prosecute Kwon due to the location of his operations.
Terraform Labs’s $1 Million Counter Offer to SEC
The SEC and Terraform labs have different views on the penalty for alleged misconduct. The SEC wants a huge $5.3 billion fine from Terraform. They hope this will prevent future misconduct in the crypto world. But Terraform thinks that amount is unfair.
In court papers, Terraform’s lawyers suggested $1 million would be a more reasonable penalty. The huge gap between $5.3 billion and $1 million shows how much the two sides disagree about Terraform’s alleged misconduct.
“The court should not grant any injunctive relief or disgorgement and should impose at most a $1 million civil penalty against TFL (Terraform Labs),” the lawyers said.
The SEC considers this case a crucial opportunity to protect retail investors from misleading practices within the cryptocurrency industry. Director Gurbir Grewal highlighted the significant financial losses experienced by investors due to Terraform’s actions, emphasizing the necessity for regulatory oversight.
The Verdict’s Impact
While protecting investors is crucial, some experts caution against excessive fines that may hinder innovation and responsible crypto growth. They advocate for a more nuanced strategy, balancing investor protection with fostering responsible growth within the crypto landscape.
Despite the court has not decided the fine amount yet, this case will influence substantially no matter the result. If Terraform succeeds, it may cast doubts on the SEC’s capacity to regulate the rapidly transforming crypto sector. Conversely, a hefty fine would strengthen the SEC’s oversight role and potentially diminish investor interest in certain crypto ventures.