In a May 1st court filing, lawyers for Terraform Labs (TFL) argued that the U.S. Securities and Exchange Commission failed to provide sufficient evidence to justify its demands for $4.7 billion in disgorgement, interest and civil penalties against TFL and co-founder Do Kwon.

Terraform's lawyers claim the SEC presented "no evidence" that TFL or Kwon's activities within the U.S. directly caused the losses central to the civil fraud case. They assert any alleged losses happened outside America, beyond the SEC's jurisdictional authority.

$4.7B Remedy "Territorially Unlimited" The filing states that if the SEC's proposed $4.7 billion remedy is granted, it would effectively give the regulator "a territorially unlimited injunction" - allowing it to pursue penalties for conduct occurring abroad.

Terraform argues its token offerings "occurred almost entirely outside the U.S." It claims the SEC must prove Kwon's conduct had a "foreseeable substantial effect" domestically to justify such massive penalties.

$1M in Penalties "More Appropriate" In an April filing, TFL claimed just $1 million in civil penalties would be "far more appropriate" than the billions the SEC is seeking in disgorgement and interest.

Kwon's lawyers made similar jurisdictional arguments. They stated Kwon's role was "performed entirely abroad" in Korea and Singapore, beyond the SEC's reach.

Both TFL and Kwon were found liable for defrauding crypto investors after a jury trial in the SEC's case. However, the astronomical penalties proposed by the SEC appear to be a major sticking point heading into a May 22nd hearing on remedies.

Kwon's Extradition Situation Unclear It remains uncertain if Kwon himself, currently detained in Montenegro pending potential extradition to the U.S. or South Korea on criminal charges, will be present for the important May 22nd hearing.

Terraform's opposition highlights the complexities of regulating a decentralized cryptocurrency project with a global presence and user base. While found liable domestically, TFL insists its primary operations occurred outside U.S. borders, complicating the SEC's pursuit of financial remedies.

The judicial outcome could set key precedents around the SEC's jurisdictional boundaries for policing crypto fraud with international dimensions. Both sides will make their cases before the judge later this month.