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Highlights
- Terraform Lawyers said that the SEC has no evidence of UST stablecoin sales in the U.S.
- Since most of the sales happened in Korea and Singapore, they are out of US jurisdictions.
- SEC said that its wants to set an example for a blatant misconduct by Terraform Labs.
In March 2024, a New York Jury slapped fraud charges against Terraform Labs and its co-founder Do Kwon with the U.S. regulators demanding them to pay $5.3 billion in penalty. However, the lawyers representing Terraform have refused these allegations stating that the firm sold most of the UST stablecoins outside the United States.
Terraform Lawyers Refuse SEC’s Charges
On April 5, Terraform and Kwon were found guilty of fraud after a two-week trial. Following this, the SEC pushed for a substantial fine, which, if imposed, would be the largest in the crypto industry’s history, reflecting increased regulatory scrutiny from US authorities. In a recent filing, the SEC emphasized the need for the court to send a clear message that it won’t tolerate such blatant misconduct.
The SEC accused Terraform and Kwon of accruing over $4 billion in “ill-gotten gains” through unregistered token sales, which included LUNA and UST. UST, Terraform’s algorithmic stablecoin intended to maintain parity with the US dollar, suffered a collapse in 2022, resulting in a staggering $40 billion loss in market value.
However, in a filing submitted on Wednesday, May 1, Terraform’s lawyers countered that the majority of token sales occurred outside the US and that the SEC failed to provide evidence linking Terraform and Kwon’s limited US activities to any significant losses, let alone the billions sought by the SEC in disgorgement.
In a distinct filing on Wednesday, Kwon’s legal team contended that the SEC had not demonstrated that his involvement with Terraform would have a significant and foreseeable impact in the United States. The lawyers said:
“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”.
Last week, Terraform Labs submitted a filing stating that the SEC’s demand for $5.4 billion is unjustifiable. Back then, the Terraform Lawyers said that a fine of $1 million would be more appropriate.
Setting Up An Example
The SEC Enforcement Division’s director, Gurbir Grewal, responded positively to the verdict, emphasizing the importance of compliance in the crypto industry. He highlighted the severe losses suffered by investors due to Terraform Labs’ actions, presenting the case as a significant example.
Grewal’s remarks underscore the SEC’s vital role in protecting retail investors and the broader market. The ruling is expected to caution other crypto entities against engaging in deceptive practices, serving as a deterrent.
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