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Terraform Labs Pushes Back Against SEC’s $5.3 Billion Penalty Request

In response to the United States Securities and Exchange Commission’s (SEC) motion seeking $5.3 billion in disgorgement and civil penalties against Terraform Labs and its co-founder Do Kwon, lawyers representing the firm have filed a motion proposing a much lower penalty of $1 million.

According to filings made on April 26 in the U.S. District Court for the Southern District of New York, Terraform’s legal team argued against granting any injunctive relief or disgorgement. They contended that the requested funds would essentially need to come from the Luna Foundation Guard (LFG), described as a “non-party” in the civil case.

Terraform asserted that pursuing disgorgement from LFG would require the SEC to name LFG as a defendant or relief defendant, which it failed to do. The filing emphasized that the funds in question belong to LFG, not Terraform Labs, and were generated from token sales conducted by LFG.

The company suggested that a $1 million civil penalty would be more appropriate compared to the SEC’s multibillion-dollar proposal. Meanwhile, a separate filing from co-founder Do Kwon opposed the commission’s motion, arguing that a proposed remedy requiring disclosure of his accounts and assets would violate his Fifth Amendment rights against self-incrimination.

The legal battle stems from a jury’s verdict on April 5, which found Terraform and Kwon liable for defrauding investors following a two-week trial with the SEC. Terraform indicated that it is carefully considering its options and next steps following the verdict. As of now, Judge Jed Rakoff has yet to rule on the proposed remedies.

Notably, Do Kwon was not present during the trial or verdict due to travel restrictions imposed after his arrest in Montenegro in March 2023 for using falsified travel documents. Authorities in Montenegro are currently evaluating extradition requests from both the U.S. and South Korea.

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