Lawyers for the United States Securities and Exchange Commission have filed their response to a memo by Terraform Labs in proposed remedies for judgment following a verdict in the civil case. 

In a May 6 filing in the U.S. District Court for the Southern District of New York, the SEC pushed back against Terraform’s arguments for less disgorgement in judgment in the civil case, for which a jury found the firm liable. According to SEC lawyers, Terraform and co-founder Do Kwon never presented the argument in court that the commission was enforcing the extraterritorial application of federal laws for the offer and sale of tokens outside the United States.

“Defendants’ arguments lack merit as they rely on a misapplication of the law and misstatement of the relevant facts,” said the SEC filing.

SEC pushes back against Terraform’s claims fraud happened outside US image 0 Source: PACER

Even if the court accepted the legal basis of Terraform’s argument, the SEC cited several examples of activities in the U.S. that could be used to enforce securities laws. The argument omitted the “secret role” that a U.S. company, Jump, played in restoring TerraUSD (UST) to its dollar peg. 

Terraform’s former communications head was based in California, where he “posted a series of false and misleading tweets at Kwon’s direction that credited UST’s recovery of its $1 peg to its algorithm.” Kwon touted UST in person at a New York conference in September 2021 and spoke to media outlets with an audience in the country.

The SEC  planned to seek $3.6 billion in disgorgement from Terraform and Kwon and $1.7 billion in “ill-gotten gains from Defendants’ net sales of UST.” In its filing for proposed judgment, Terraform suggested a $1 million civil penalty and no disgorgement.

Related: Montenegrin court postpones Do Kwon’s extradition to South Korea

After a two-week trial, a jury found Terraform and Kwon liable for fraud in April. All parties in the civil lawsuit are scheduled to return to court on May 22 for Judge Jed Rakoff to consider proposed remedies.

Kwon could not attend the trial in person due to legal entanglements in Montenegro. In 2023, the Terraform co-founder was arrested and sentenced to four months in prison for using falsified travel documents. He remains in the country as the courts consider extradition requests from the U.S. and South Korea.

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