Attorneys representing Terraform Labs have lodged a motion contesting the U.S. Securities and Exchange Commission's (SEC) directive mandating the company and its co-founder, Do Kwon, to pay $5.3 billion in disgorgement and civil penalties. Filed on April 26 in the U.S. District Court for the Southern District of New York, Terraform's legal team argued that the court should cap any civil penalty at a maximum of $1 million, considering the jury's fraud liability verdict against the platform and Kwon.
Terraform asserted that granting injunctive relief or disgorgement would be inappropriate, given that the funds in question must actually be sourced from the Luna Foundation Guard (LFG), a "non-party" in the civil case. The motion contends that the SEC's failure to name LFG as a defendant or relief defendant renders any order against Terraform Labs to turn over LFG's funds impermissible. According to the document, these funds rightfully belong to LFG, not Terraform Labs, and any token sales they generate are conducted by LFG.
In proposing a $1 million civil penalty as more fitting, Terraform posited an alternative to the SEC's multi-billion-dollar demand. Similarly, a separate filing by Do Kwon opposed the committee's motion, asserting that the proposed remedy of divulging full details of his accounts and assets would contravene his Fifth Amendment right against self-incrimination. Following a two-week trial before the SEC, a jury found Terraform and Kwon guilty of defrauding investors on April 5.
As of the latest update, Judge Jed Rakoff has yet to rule on the proposed remedy, leaving the outcome pending. Meanwhile, Do Kwon's involvement in the trial or sentencing was hindered by travel restrictions imposed in Montenegro, where he remains unable to depart due to prior arrest in March 2023 for using counterfeit travel documents. Presently, Montenegrin authorities are evaluating competing extradition requests from the United States and South Korea.
