Terraform proposes $1M penalty for SEC case, no relief or disgorgement

As a researcher with a background in securities law, I find the ongoing legal battle between Terraform Labs and the SEC intriguing. In this case, Terraform’s lawyers have filed a compelling motion in opposition to the SEC’s request for $5.3 billion in disgorgement and civil penalties.

As an analyst, I would rephrase it as: “I, on behalf of Terraform Labs’ legal team, have submitted a filing opposing the Securities and Exchange Commission’s (SEC) demand for approximately $5.3 billion in disgorgement and civil penalties. The SEC has proposed these sanctions against my client and its co-founder, Do Kwon.”

In a court filing on April 26, Terraform’s legal representatives proposed that the judge impose a fine of up to $1 million against them and Kwon following a jury decision finding them responsible for fraud. Terraform contended that the court “should deny any injunctive relief or disgorgement orders” since the necessary funds would need to be sourced from the Luna Foundation Guard (LFG), an entity not involved in the civil lawsuit.

In order to obtain disgorgement from LFG (LabCoin Foundation), the SEC was obligated to name LFG as a defendant or a party seeking relief in their lawsuit. However, they failed to do so in the given filing. The law prohibits an order compelling Terraform Labs (TFL) to return funds that don’t belong to them. These funds originally belonged to LFG, and TFL did not receive them during the token sales conducted by LFG itself.

Terraform argued that a civil penalty of $1 million was a more fitting response from the SEC instead of their multibillion-dollar proposal. In a separate submission, Kwon also disagreed with the commission’s motion and asserted that disclosing comprehensive information about his accounts and assets would infringe upon his Fifth Amendment protection against self-incrimination.

On April 5, following a two-week trial, a jury reached a verdict, holding Terraform and Kwon accountable for defrauding investors in conjunction with the SEC. At that point, a representative from Terraform communicated to CryptoMoon that they were seriously considering their available options and the subsequent actions to take. At the time of reporting, Judge Rakoff had yet to make a decision regarding the proposed reparations.

In March 2023, Kwon was apprehended in Montenegro with forged travel documents, leading to his confinement within the country. At the time of the trial and verdict, his absence was noted due to these travel restrictions. Presently, there are contrasting extradition demands from both the United States and South Korea, which local authorities are deliberating upon.

2024-04-30 00:30

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