Attorneys representing the U.S. Securities and Exchange Commission (SEC) have issued a response to a memo submitted by Terraform Labs proposing post-judgment remedies in a civil case. Filed on May 6 in the U.S. District Court for the Southern District of New York, the SEC's response rebuffed Terraform's argument seeking a reduction in disgorgement ordered in the judgment of the civil case where the company and its co-founder, Do Kwon, were found liable by a jury.
According to the SEC's legal team, Terraform and Kwon failed to present the argument in court that the commission was enforcing extraterritorial application of federal law regarding the issuance and sale of tokens outside the United States. The filing from the SEC asserted that the defendants' arguments lack merit due to a misapplication of the law and misstatements of relevant facts.
Even if the court were to accept the legal basis of Terraform's argument, the SEC pointed out several activities that could serve as grounds for enforcing securities laws in the United States. Among these activities was the involvement of the American company Jump in restoring TerraUSD's (UST) peg to the U.S. dollar, which was allegedly kept secret.
The SEC highlighted instances where Terraform's former head of communications, residing in California, allegedly disseminated false and misleading information on social media, attributing UST's return to its $1 peg to its algorithm at Kwon's direction. Kwon himself had purportedly promoted UST at a New York conference in September 2021 and engaged with national media.
For remedies, the SEC intends to pursue $3.6 billion in disgorgement from Terraform and Kwon, alongside $1.7 billion in "defendants' net ill-gotten gains from the sale of UST." In response, Terraform proposed a $1 million civil penalty with no disgorgement. The civil suit's parties are slated to reconvene on May 22 for Judge Jed Rakoff to review proposed remedies. Kwon, however, was absent from the trial due to ongoing legal disputes in Montenegro, where he faced imprisonment for using forged travel documents.
