Terraform Labs Counters SEC's $5.3Bn Penalty Request, Proposes $1M Fine Instead
Summary:
Terraform Labs' lawyers have countered a $5.3 billion disgorgement and civil penalty request by the U.S. Securities and Exchange Commission (SEC) against them and Terraform's co-founder, Do Kwon. Instead, Terraform proposes a maximum civil penalty of $1 million. The firm argues against any disgorgement, stating that the funds would have to unfairly come from the Luna Foundation Guard (LFG), a separate entity from the trial. In earlier proceedings, a jury found Terraform and Kwon guilty of defrauding investors. Kwon was absent from the trial due to travel restrictions.
In a legal development, attorneys for Terraform Labs have countered a need by the U.S. Securities and Exchange Commission (SEC) for the firm and its co-founder Do Kwon to hand over $5.3 billion in disgorgement and civil fines. Terraform's lawyers, in their motion filed on April 26 in the Southern District of New York's U.S. District Court, proposed that the court enforce a $1 million civil fine at most, given the jury's verdict that Terraform and Kwon were at fault for fraudulent practices. Terraform pleaded with the court to forego any forfeiture or injunction, citing that any recovered funds would be extracted from the Luna Foundation Guard (LFG), an entity not were involved in this case.
Terraform argued that it would have been necessary for the SEC to categorize LFG as a defendant or an entity in need of relief to pursue disgorgement from LFG, which the SEC failed to do. The motion stated that it's impossible to demand Terraform to forfeit assets from LFG as Terraform hasn't received such assets. It further stressed that the assets in question belong to LFG, and all token sales generating those assets were managed by LFG.
Terraform stated it believes a $1 million fine is a far more relevant penalty than a multi-billion fine pitched by the SEC. In a separate submission, Kwon also expressed objection to the SEC's bid, contending that the proposed remedy of revealing comprehensive details of his assets and accounts would infringe his Fifth Amendment rights against self-incrimination.
On April 5, following a fortnight-long trial with the SEC, a jury deemed Terraform and Kwon responsible for misleading investors. Then a Terraform representative told Cointelegraph the company is "carefully considering [its] future direction and steps." Judge Jed Rakoff hadn't made any decisions on proposed remedies as of the time of writing this report.
As he is barred from travelling beyond Montenegro due to being apprehended earlier in March 2023 for possesion of false travel documents, Kwon was neither present at the trial nor the verdict reading. The legal system in Montenegro is concurrently weighing contradicting extradition requests from the U.S. and South Korea for the Terraform co-founder.
Published At
4/30/2024 12:30:00 AM
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