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Lawyers representing Terraform Labs stated that the SEC should effectively seek the penalty from the Luna foundation Guard (LFG) which is a non-entity in this case as of now.
The US Securities and Exchange Commission (SEC) has proposed a penalty of $5.3 billion after co-founder Do Kwon was found guilty of fraud. However, lawyers representing Terraform Labs say that a fine of $1 million would be more appropriate. Interestingly, they are seeking a 99% reduction from the penalty proposed by the US SEC.
Last week, the US SEC said that Terraform and Do Kwon should pay a total of $4.7 billion in disgorgement charges and prejudgement interest. Additionally, they demand a $520 million payment in civil penalties. However, in their court filing, the lawyers of Terraform stated that the penalty should be much lower. The filing noted:
“To pursue disgorgement from Luna Foundation Guard (LFG), the SEC was required to name LFG as a defendant or relief defendant, which it did not do […] This statute bars an order against TFL [Terraform Labs] to disgorge LFG funds because TFL did not receive them. Those funds belong to LFG, not TFL, and the token sales from which they arose were conducted by LFG.”
“In conclusion, the Court should not grant any injunctive relief or disgorgement, and should impose at most a $1 million civil penalty against TFL,” the lawyers said.
The Terraform and Do Kwon Case
Terraform and Ripple find themselves entangled in legal disputes with the SEC over alleged violations. In February 2023, the SEC filed charges against Terraform and its co-founder Kwon concerning issues surrounding the algorithmic stablecoin Terra USD (UST).
Following a two-week trial with the SEC, Terraform and Kwon were found guilty of defrauding investors by a jury on April 5. Despite the verdict, a Terraform spokesperson stated that the company was carefully assessing its options and planning its next steps.
During the trial and verdict, Kwon was notably absent due to travel restrictions preventing him from leaving Montenegro. Kwon, a co-founder of Terraform, had been detained in March 2023 in Montenegro for allegedly using falsified travel documents. Presently, authorities in Montenegro are evaluating extradition requests from both the US and South Korea.
The $40 billion collapse of the Terraform Labs back in 2022 led to a significant market downturn leading to the bankruptcy of several other crypto firms like BlockFi, Celcius, FTX, etc. Earlier this year, the platform filed for Chapter 11 bankruptcy protection.
