According to Bloomberg, Terraform and its inventor Kwon are contesting the lawsuit filed by the US Securities and Exchange Commission (SEC) over the collapse of the TerraUSD stablecoin. The firm's failure in 2022 reportedly wiped out $40 billion in investor assets and caused a significant disturbance in the cryptocurrency market. However, Terraform's lawyers argued in a recent filing that the firm's token offers and sales occurred predominantly outside the US. They also stated that the SEC failed to provide evidence that Terraform and Kwon's limited activities in the US directly led to any losses, let alone the billions the SEC is seeking in disgorgement.
On April 5, Terraform and Kwon were found guilty of fraud following a two-week trial. The SEC subsequently urged the judge to impose a fine, which, if granted, would be the largest ever in the crypto industry. The SEC's push for this penalty comes as the crypto industry faces increased scrutiny from US regulators. The SEC alleged that Terraform and Kwon made over $4 billion in 'ill-gotten gains' from unregistered sales of tokens, including LUNA and UST. Terraform's UST, an algorithmic stablecoin intended to be pegged to the US dollar's price, wiped out $40 billion in market value when it collapsed in 2022.
In a separate motion, Kwon's lawyers argued that the SEC failed to demonstrate that his work with Terraform had a 'foreseeable substantial effect' in the US. They stated that Kwon's role in the conduct that forms the basis of the SEC's requested judgment was performed entirely abroad, in Korea and Singapore. The civil case is currently being heard in the US District Court, Southern District of New York.
