SEC Counters Terraform Labs' Plea for Lesser Penalty in Financial Misconduct Case
Summary:
After a jury found Terraform Labs and co-founder Do Kwon liable in a civil case, the SEC has submitted a response to Terraform's proposed remedies, which included a plea for a lesser disgorgement amount. The SEC aims to seek a $3.6 billion disgorgement from Terraform and Kwon and $1.7 billion from the net sales of TerraUSD. Meanwhile, Terraform suggested a $1 million civil penalty and no disgorgement. All parties will return to court on May 22 to discuss proposed penalties. Kwon, who couldn't attend the trial due to legal troubles in Montenegro, remains there awaiting possible extradition.
U.S. Securities and Exchange Commission (SEC) attorneys have responded to a brief submitted by Terraform Labs, outlining potential penalties following a verdict in a civil lawsuit. This response, filed on May 6 in the U.S. District Court for the Southern District of New York, refutes Terraform's plea for a lesser disgorgement amount in the civil case's judgment, given a jury found the company culpable. According to the SEC, Terraform and its co-founder Do Kwon failed to argue in court that the SEC was enforcing the extraterritorial application of federal laws related to the offering and selling of tokens outside the U.S. Their arguments are not strong, the SEC maintained, as they depend on a misinterpretation of the law and a distortion of the facts.
Even if the court accepted Terraform’s basis for its argument, SEC highlighted several instances of U.S.-based activities that could enforce securities laws. There was no mention of the undisclosed role of a U.S. company, Jump, in reestablishing TerraUSD's (UST) dollar peg. Terraform's former communications chief, a California resident, issued false and misleading tweets directed by Kwon, crediting UST's recovery of its $1 peg to its own algorithm. Kwon promoted UST in New York at a conference in September 2021 and spoke to media with an American audience.
The SEC plans to seek disgorgement of $3.6 billion from Terraform and Kwon, and $1.7 billion from the "ill-gotten gains from the net sales of UST." Terraform, in its filing, suggested a $1 million civil penalty and proposed not to have any disgorgement at all.
The lawsuit verdict in April concluded with Terraform and Kwon found guilty of fraud after a two-week trial. All parties are scheduled to reappear in the court on May 22 for Judge Jed Rakoff to consider the proposed penalties.
Kwon was unable to attend the trial in person due to legal issues in Montenegro. He was arrested in 2023 and sentenced to four months in prison for using counterfeit travel papers. At present, he remains in Montenegro as the courts assess the extradition requests from the U.S. and South Korea.
Published At
5/7/2024 10:46:44 PM
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