In March 2024, Terraform Labs and Do Kwon faced accusations of fraud by a New York jury, with US regulators seeking a hefty $5.3 billion fine. Legal representatives for the company denied the claims, stating that the majority of their UST stablecoin sales took place outside the United States. The Securities and Exchange Commission (SEC) alleged that Terraform and Kwon made more than $4 billion in profits through unregistered token sales of LUNA and UST.

The SEC's allegations against Terraform Labs and its co-founder have caused a stir within the crypto industry, with the company's lawyers contesting the charges by highlighting that most of their token transactions occurred overseas.

Terraform's Legal Team Fights Back

Following a two-week trial that resulted in Terraform and Do Kwon being found guilty of fraud in early April, the SEC pushed for an unprecedented monetary penalty, underscoring the growing regulatory oversight by US authorities. In a recent filing, the SEC stressed the importance of sending a clear message that such violations would not go unpunished.

SEC Allegations of Unjust Gains

The SEC's claim of over $4 billion in unjust profits from unregistered token sales, including LUNA and UST, has put Terraform in the spotlight. The company's UST stablecoin suffered a major drop in 2022, losing $40 billion in market value. Despite this, Terraform's legal team argued in a submission on May 1 that most of the token transactions occurred outside the US, casting doubt on the SEC's ability to prove significant losses linked to Terraform and Kwon's limited US operations.

Implications and Future Outlook

The ongoing legal battle between Terraform Labs, Do Kwon, and the SEC offers valuable insight into the regulatory landscape of the crypto industry. While the SEC accuses the company and its co-founder of illicit gains through unregistered token sales, Terraform's legal defense suggests that most of these activities were conducted outside the US. The outcome of this case could establish a precedent for how regulatory authorities address similar issues in the future.