According to Terraform Labs’ legal team, the Luna Foundation Guard (LFG) is currently not a party to this action, but the SEC should pursue penalties against them.
The US Securities and Exchange Commission (SEC) has recommended a fine of $5.3 billion after the conviction of co-founder Do Kwon for fraud. The attorneys at Terraform Labs, on the other hand, believe a $1 million fine is more reasonable. They are requesting a decrease of 99% from the penalty that the US SEC has imposed, which is rather interesting.
The US SEC imposed a disgorgement and prejudgement interest of $4.7 billion on Terraform and Do Kwon last week. In addition, they are requesting a payment of $520 million as civil penalties. The Terraform legal team, however, argued in a court filing that a far smaller penalty was appropriate. The document mentioned:
“The SEC failed to designate Luna Foundation Guard (LFG) as a defendant or relief defendant, which was necessary for it to seek disgorgement against LFG […]” Since Terraform Labs did not receive the LFG funds, an order to disgorge them would be invalid under this provision. Since LFG was the one that executed the token sales that generated these funds, they rightfully belong to LFG and not TFL.
Lawyers for TFL argued that the court should not award disgorgement or injunctive relief and instead impose a civil penalty of no more than $1 million on the company.
A court battle has broken out between the SEC, Ripple, and Terraform over purported infractions. Concerning matters pertaining to the algorithmic stablecoin Terra USD (UST), the SEC filed charges against Terraform and its co-founder, Kwon, in February 2023.
A jury convicted Terraform and Kwon of investor fraud on April 5, after a two-week trial with the SEC. A representative for Terraform said that the firm was still considering its options and making plans for the future in light of the decision.
Kwon was conspicuously absent during the trial and conviction because he was unable to leave Montenegro due to travel restrictions. Kwon, a co-founder of Terraform, was detained in March 2023 in Montenegro for allegedly using fraudulent travel papers. The Montenegrin government is now reviewing extradition petitions from the United States and South Korea.
Many more cryptocurrency companies went bankrupt in 2022 as a result of the market crash that followed the $40 billion failure of Terraform Labs. This included BlockFi, Celcius, FTX, and many more. The platform sought Chapter 11 bankruptcy protection earlier this year.
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