Terraform Lawyers are fighting the US SEC with the proposed civil penalty.
Do Kwon may still face charges in the United States.
Terraform Labs, the company behind the algorithmic stablecoin TerraUSD (UST) is fighting the United States Securities and Exchange Commission (SEC) over a hefty fine levied by the regulator.
Terraform Lab’s Lawyers Argument
According to reports, the SEC alleges Terraform misled investors and is seeking $5.3 billion in penalties, with most of that being disgorgement, a form of repayment for ill-gotten gains. As Crypto News Flash had earlier detailed, Terraform said it could only pay $1 million.
However, Terraform lawyers are arguing that the majority of their token sales took place outside the United States, and therefore, noted in a brief filed on Wednesday that the SEC’s reach is limited. They further claim the SEC hasn’t provided evidence that their minimal US activity directly caused investor losses.
The SEC points to Terraform’s sponsorship deal with a Major League Baseball team in Washington D.C. as evidence of its intention to target US investors. The SEC’s brief filed in late April noted,
“Terraform so wanted to ingratiate itself into American society that it paid more than $38 million to prominently display its logo at a ballpark where America’s favorite pastime is played in America’s capital city.”
While responding to the brief, Terraform dismisses this as insignificant, highlighting the relatively small number of proven US purchases. Displaying TFL’s logo at a baseball stadium in Washington, D.C., did not have a substantial effect within the US,” says Terraform’s lawyers.
As a reminder, this dispute stems from the collapse of UST back in May 2022, which triggered a domino effect wiping out $50 billion. UST, designed to maintain a stable price through an algorithmic mechanism, became unstable and lost its peg to the US dollar. This triggered a death spiral for LUNA, UST’s sister token.
In February 2023, the SEC charged Terraform and co-founder Do Kwon over the collapse of UST. As previously reported by Crypto News Flash, a jury declared that both Terraform and Kwon misled investors and were found liable for civil fraud. Following the ruling, Terraform pleaded innocence and contended that the whole case was based on words taken out of context to support the SEC’s story.
Despite being held guilty, Kwon will not face prison time because this was a civil matter. The court will, however, determine the proper penalties and disgorgement. Kwon was unable to appear in Manhattan because he is still in Montenegro, where he was arrested and jailed last year. Should he be extradited to the United States, he will face criminal fraud charges.
US Residents Barred from Terraform Labs
Amid the ongoing legal tension, Terraform Labs has taken a bold decision to prohibit residents of the United States from using its platform. Terraform Labs voiced concern with the development, emphasizing its principled opposition to geoblocking. However, the corporation highlighted that it saw the need to adjust to the regulatory change.
Reiterating Crypto News Flash’s earlier reports, Certain initiatives, like Alliance, an open-source Cosmos SDK extension, and the Terra blockchain itself are unaffected by the policy change.
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