Terraform (TFL) claims SEC offered ‘no evidence’ for $4.7B in disgorgement

Lawyers for the firm stated that any alleged damages caused by the platform’s or Do Kwon’s acts occurred outside of the United States, which exceeded the SEC’s jurisdiction in the civil case. With a hearing slated for May 22 to hear recommended remedies in the United States Securities and Exchange Commission’s (SEC) lawsuit against Terraform Labs (TFL) and co-founder Do Kwon, the crypto startup has urged for a significantly different judgment from the regulator’s proposal.

In a supplement to Terraform’s response to the SEC’s request for final judgment, issued on May 1, lawyers for the cryptocurrency corporation argued that the financial regulator was not entitled to $5.3 billion in disgorgement, interest, and civil penalties after a jury found TFL and Kwon responsible for fraud. 

Terraform expanded on its prior assertions that any disgorgement would have to be sought from the Luna Foundation Guard (LFG), a “non-party” in the civil suit. According to Terraform’s lawyers, the SEC found “no evidence” that the platform’s or Kwon’s operations in the United States caused the damages at issue in the civil lawsuit. According to Terraform, if the commission sought disgorgement and civil penalties, it would grant the regulatory body a “territorially unlimited injunction.” “TFL’s offers and sales of tokens occurred almost entirely outside the U.S. The SEC has submitted no evidence that Defendants’ limited activities in the U.S. directly caused any losses, much less the billions the SEC seeks in disgorgement,” said the filing with the SEC on May 1.

In a filing on April 26, Terraform stated that $1 million in civil fines would be “far more appropriate” than the SEC’s multibillion-dollar proposal. Kwon, who is now in Montenegro awaiting extradition to the United States or South Korea, rejected the SEC’s proposed remedies to the civil case on the same grounds as Terraform.

“The SEC must still establish that Mr. Kwon engaged in conduct within the United States or conduct without the United States that had a ‘foreseeable substantial effect’ in the United States,” according to the lawyers representing the co-founder of Terraform. “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.” After a two-week trial with the Securities and Exchange Commission, a jury found Terraform and Kwon liable for defrauding investors. The parties are scheduled to present their proposed remedies before Judge Jed Rakoff on May 22. The legal situation in Montenegro at the time of publication made it unclear whether Kwon would be available.

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