SEC Rejects Terraform Labs' Arguments in Civil Case

Sentiment: Negative

SEC disputes Terraform Labs' claim of jurisdiction outside the US in a civil case over alleged fraud, seeking significant penalties.

The U.S. Securities and Exchange Commission (SEC) has pushed back against Terraform Labs' attempts to lessen penalties in a civil case following allegations of fraud. In April 2024, Terraform Labs, along with its co-founder Do Kwon, were found liable for fraud by a jury.

In a filing dated May 6th, the SEC contested Terraform Labs' argument for reduced penalties, asserting its authority in the case despite the alleged fraudulent activities occurring outside the United States.

The SEC refuted Terraform Labs' claim, highlighting that the defense had not previously raised the issue of jurisdiction during the trial. Moreover, the SEC provided evidence of U.S.-based activities that they believe justified their involvement in the case:

• A Terraform Labs employee based in California was found to have tweeted misleading information under Do Kwon's direction.

• Do Kwon himself promoted UST (the stablecoin associated with Terraform) at a conference in New York and through various U.S. media outlets.

The SEC is pursuing significant penalties against Terraform Labs and Do Kwon. They aim for $3.6 billion in disgorgement from the company and its co-founder, along with an additional $1.7 billion representing "ill-gotten gains". However, Terraform Labs has proposed a much lower civil penalty of $1 million with no disgorgement.

The case is set for a court hearing on May 22nd, during which Judge Jed Rakoff will determine the appropriate penalties. Notably, Do Kwon is currently located in Montenegro and faces extradition requests. He has encountered legal issues previously, including arrest for allegedly using fraudulent travel documents.