Terraform Labs (TFL) and co-founder Do Kwon are set to face a hearing on May 22 to discuss potential remedies in the case brought against them by the United States Securities and Exchange Commission (SEC). However, TFL has presented a different judgment from the one proposed by the regulator.
In a recent filing, lawyers representing TFL argued that the SEC was not entitled to the $5.3 billion in disgorgement, interest, and civil penalties it sought after a jury found TFL and Kwon guilty of fraud. TFL maintained its previous claims that any disgorgement should come from the Luna Foundation Guard (LFG), a non-party to the civil case.
According to TFL’s lawyers, the SEC had no evidence that the platform’s or Kwon’s activities in the US caused the losses in question. They argued that if the SEC were to claim disgorgement and civil penalties, it would give the regulator an unlimited reach.
“TFL’s offers and sales of tokens occurred almost entirely outside the US… and the SEC has submitted no evidence that Defendants’ limited activities in the US directly caused any losses, much less the billions the SEC seeks in disgorgement,” stated the filing.
In a previous filing on April 26, TFL suggested that $1 million in civil penalties would be more appropriate than the SEC’s multibillion-dollar proposal. Kwon, who is currently awaiting extradition in Montenegro, opposed the SEC’s proposed remedies on similar grounds.
“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,” the lawyers representing Kwon argued. “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.”
Following a two-week trial, a jury found Terraform and Kwon guilty of defrauding investors. All parties involved are expected to present their arguments for proposed remedies on May 22 before Judge Jed Rakoff. However, it remains uncertain whether Kwon will be available due to his legal situation in Montenegro.