Terraform Labs, represented by their team of lawyers, has objected to a claim made by the United States Securities and Exchange Commission (SEC) for penalties and disgorgement amounting to $5.3 billion. This follows a ruling in which Terraform, along with its co-founder Do Kwon, were deemed liable for fraud. In a court filing, the company’s legal team counter proposed a maximum fine of $1 million.
The April 26 filing with the U.S. District Court for the Southern District of New York further stated that Terraform should not face any disgorgement as retrieving the amount would essentially involve the non-participant Luna Foundation Guard (LFG). Terraform’s lawyers elaborated that to pursue an amount from LFG, the SEC should have included it as a defendant, which didn’t happen.
The lawyers further clarified that the funds in question belong to LFG and not to Terraform, and LFG was responsible for the token sales which generated the funds. Therefore, any order for Terraform to disgorge funds from LFG would go against the statute, since Terraform didn’t receive them.
The legal team argued that a $1 million civil fine would be more plausible than the hefty demand from the SEC. In a separate submission, Kwon also contested the SEC’s filing, pointing out that the proposed solution requiring him to disclose comprehensive details of his accounts and holdings would infricnge on his Fifth Amendment rights against self-incrimination.
The liabilities for Terraform and Kwon were established following a two-week trial in April, when a jury found evidence of investor fraud. At the time, Terraform stated that it was assessing all available options regarding the next steps. No ruling from Judge Jed Rakoff was released regarding the proposed remedies at the time this information was published.
Kwon, was noticeably absent from the trial and verdict due to travel restrictions while in Montenegro, where he was arrested in March 2023 for alleged use of forged travel papers. Presently, his extradition is being contested by US and South Korean authorities respectively.