Do Kwon and Terraform Try to Avoid $5.3 Billion Fraud Charges: Will Claim Most Stablecoins Sold Outside US Hold Water?

Key Takeaways

• A US jury found Terraform Labs and Do Kwon guilty of fraud last month
• Meanwhile, the SEC is seeking a record-breaking $5.3 billion penalty.
• Terraform argues most token sales occurred outside the US and denies causing financial losses.
• The SEC views the case as a way to protect investors and deter future crypto fraud.

In March 2024, a New York jury brought fraud charges against Terraform Labs and its co-founder Do Kwon. American regulators sought a $5.3 billion penalty against the developers.

However, Terraform’s legal representatives have contested these allegations . They argue that the majority of the UST stablecoins were sold outside the United States.

Terraform Labs Fights Back After Guilty Verdict in $40 Billion UST Collapse

On April 5, after a two-week trial, Terraform Labs and its co-founder Do Kwon were found guilty of fraud. In response, the United States Securities and Exchange Commission (SEC) called for a significant fine of more than $5 billion. In a recent legal filing, the SEC said it was important that the court deliver a strong message against such misconduct.

The SEC has charged Terraform Labs and its co-founder Do Kwon with generating over $4 billion in “ill-gotten gains” from unregistered sales of tokens, including LUNA and UST. The latter, an algorithmic stablecoin designed to maintain a value equal to the US dollar, experienced a catastrophic collapse in 2022, erasing $40 billion in market value.

In response, Terraform’s legal team submitted a filing  on Wednesday, May 1. In it, the team argued that the majority of the token sales took place outside the US. They also contended that the SEC has not successfully demonstrated a connection between Terraform and Kwon’s limited activities in the US and any substantial financial losses, challenging the billions in disgorgement the SEC is pursuing.

Do Kwon Lawyers: SEC Charges Unfounded, Actions Taken Abroad

In a recent filing on Wednesday, Kwon’s legal team argued that the SEC had not proven that his role at Terraform would have a significant and foreseeable effect in the United States. They maintained  that Kwon’s activities related to the SEC’s case took place outside the US, specifically in Korea and Singapore.

Terraform Labs Calls $5.4 Billion Fine “Unjustifiable,” Proposes $1 Million

Last week, Terraform Labs submitted a filing arguing that the SEC’s demand for a $5.4 billion fine was unjustifiable. They instead claimed that a fine of $1 million would be more fitting.

Gurbir Grewal, the director of the SEC Enforcement Division, responded favorably  to the court’s decision. He also pointed out  the extensive losses suffered by investors due to the actions of Terraform Labs.

Grewal’s comments  highlight the SEC’s role in safeguarding retail investors and maintaining market integrity. The verdict could well serve as a warning to other cryptocurrency entities about the consequences of engaging in fraudulent practices.