Lawyers representing the United States Securities and Exchange Commission (SEC) have responded to a memo submitted by Terraform Labs regarding proposed remedies for judgment in a civil case. The SEC’s filing, submitted on May 6 in the U.S. District Court for the Southern District of New York, challenges Terraform’s arguments for reduced disgorgement in the judgment, following the jury’s verdict that found the firm liable. The SEC asserts that Terraform and co-founder Do Kwon never presented the argument in court that the commission was applying federal laws extraterritorially for the offer and sale of tokens outside of the United States. The SEC filing states that “Defendants’ arguments lack merit as they rely on a misapplication of the law and misstatement of the relevant facts.”
Even if the court were to accept the legal basis of Terraform’s argument, the SEC provides several examples of activities in the U.S. that could be used to enforce securities laws. Terraform’s argument fails to mention the “secret role” played by U.S. company Jump in restoring TerraUSD (UST) to its dollar peg. The former communications head of Terraform, based in California, was responsible for “posting a series of false and misleading tweets at Kwon’s direction that credited UST’s recovery of its $1 peg to its algorithm.” Kwon himself promoted UST at a conference in New York in September 2021 and spoke to media outlets with an audience in the country.
The SEC plans to seek $3.6 billion in disgorgement from Terraform and Kwon, as well as $1.7 billion in “ill-gotten gains from Defendants’ net sales of UST.” In response, Terraform has proposed a $1 million civil penalty and no disgorgement in its filing for proposed judgment.
Following a two-week trial, a jury found Terraform and Kwon liable for fraud in April. All parties involved in the civil lawsuit are scheduled to return to court on May 22, where Judge Jed Rakoff will consider the proposed remedies.
Kwon was unable to attend the trial in person due to legal issues in Montenegro. In 2023, the Terraform co-founder was arrested and sentenced to four months in prison for using falsified travel documents. He remains in Montenegro as extradition requests from the U.S. and South Korea are being considered by the courts.
Source: PACER
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