In a legal document submitted on the first day of May, attorneys representing Terraform Labs (TFL) contended that the U.S. Securities and Exchange Commission lacked compelling proof to warrant its demand for a staggering $4.7 billion in disgorgement, interest, and civil penalties against TFL and co-founder Do Kwon. Lawyers advocating for Terraform put forth the assertion that the SEC failed to furnish substantial evidence illustrating that the activities of TFL or Kwon within the United States directly led to the financial losses at the core of the civil fraud case. They argued that any purported losses actually transpired outside the geographical bounds of America, falling beyond the regulatory jurisdiction of the SEC.

The filing by Terraform pointed out that should the SEC's requested $4.7 billion resolution be approved, it would essentially confer upon the regulatory body "an injunction that knows no bounds" in terms of territory, authorizing it to pursue penalties for behavior occurring in foreign lands. Terraform insisted that its offerings of tokens predominantly took place beyond U.S. borders. To justify such exorbitant penalties, the SEC, according to Terraform, must demonstrate that Kwon's actions had a reasonably foreseeable significant impact within the country.

In an earlier submission made in April, TFL asserted that a more suitable recourse would entail a mere $1 million in civil penalties, a stark contrast to the billions fervently demanded by the SEC in the form of disgorgement and interest. Echoing similar jurisdictional contentions, Kwon's legal representatives contended that Kwon's involvement was entirely based in Korea and Singapore, effectively placing him beyond the regulatory grasp of the SEC.

Following a jury trial in the SEC's lawsuit, both TFL and Kwon were found culpable of deceiving cryptocurrency investors. However, the high monetary penalties sought by the SEC have emerged as a significant hurdle as the date for the hearing on remedies, scheduled for the 22nd of May, draws near. The predicament regarding Kwon's extradition remains shrouded in ambiguity, given his current detainment in Montenegro as he faces likely extradition to either the U.S. or South Korea on criminal charges.

The opposition mounted by Terraform underscores the intricate challenges associated with overseeing a decentralized cryptocurrency project boasting a worldwide presence and user base. Despite being held accountable domestically, TFL maintains that its central operations were predominantly situated beyond the confines of the United States, thereby complicating the SEC's quest for financial restitution. The forthcoming legal decision could establish crucial precedents delineating the regulatory boundaries of the SEC regarding the oversight of cryptocurrency fraud cases with international ramifications. Both parties will make their arguments before the judge later in the month.