Amidst the buzz surrounding the upcoming hearing on May 22 regarding the Securities and Exchange Commission's (SEC) case against Terraform Labs (TFL) and co-founder Do Kwon, the legal team representing the crypto firm has vehemently contested the proposed penalties put forth by the SEC. In a recent filing in response to the SEC's motion for final judgment, Terraform's lawyers argued that the financial regulator's push for $5.3 billion in disgorgement, interest, and civil penalties lacked a solid foundation. They maintained that any alleged financial losses from TFL and Kwon's actions occurred beyond the purview of the United States, thus falling outside the SEC's jurisdiction in the civil case.

The crux of Terraform's defense centered on the idea that the losses attributed to the platform and Kwon were not primarily linked to activities within the United States. The legal team asserted that the SEC had failed to provide sufficient evidence to demonstrate that the platform's operations in the U.S. directly caused the substantial losses at the heart of the case. Terraform contended that if the SEC were to proceed with disgorgement and civil penalties, it would essentially grant the regulatory body an overly expansive reach with a jurisdiction that transcends boundaries.

According to Terraform's legal representatives, the transactions involving TFL's tokens predominantly occurred outside the United States, thereby undermining the SEC's basis for the colossal sum it sought in disgorgement. The filings stressed the lack of conclusive evidence linking the Defendants' limited U.S. activities to the extensive losses the SEC aimed to recover through disgorgement.

Furthermore, in an earlier document filed on April 26, Terraform argued that a proposed $1 million in civil penalties would be a more reasonable recourse compared to the SEC's multibillion-dollar demand. Kwon, currently situated in Montenegro awaiting potential extradition to either the U.S. or South Korea, aligned his objections to the SEC's proposed remedies with Terraform's stance. Lawyers defending the Terraform co-founder emphasized the necessity for the SEC to establish that Kwon's actions had either a direct U.S. connection or a substantial foreseeable impact within the United States.

It was outlined that Kwon's involvement in the activities forming the basis of the SEC's requested judgment predominantly occurred abroad, specifically in Korea and Singapore. The culmination of a two-week trial saw Terraform and Kwon being held accountable for defrauding investors, with all parties gearing up to present their arguments for proposed remedies before Judge Jed Rakoff on May 22. However, uncertainties surrounded Kwon's availability during the proceeding, given his legal predicament in Montenegro, casting a shadow on the upcoming hearing.