Lawyers representing the United States Securities and Exchange Commission (SEC) have filed a response to a memorandum submitted by Terraform Labs regarding potential judgments following a civil case verdict. In a filing on May 6 in the U.S. District Court for the Southern District of New York, the SEC refuted Terraform's arguments for reduced disgorgement in the civil case where the firm was found liable by a jury. According to the SEC, Terraform and co-founder Do Kwon did not present the case in court that the commission was applying federal laws extraterritorially for token offerings outside the United States.

The SEC filing stated that the defendants' arguments were baseless as they misinterpreted the law and misrepresented the relevant facts. Even if the court agreed with Terraform's legal standpoint, the SEC provided examples of U.S.-based activities that could justify enforcing securities laws. Terraform's former communications chief was situated in California and orchestrated the dissemination of false information at Kwon's direction, crediting UST's price stabilization to its algorithm. Kwon also promoted UST at a conference in New York and engaged with U.S. media.

The SEC aimed to pursue $3.6 billion in disgorgement from Terraform and Kwon, along with $1.7 billion in illicit gains from UST sales. In contrast, Terraform proposed a $1 million civil penalty without any disgorgement. Following a jury's fraud ruling against Terraform and Kwon in April after a two-week trial, all parties in the lawsuit are expected to reconvene in court on May 22 for Judge Jed Rakoff to consider potential remedies.Kwon was unable to be physically present at the trial due to legal complications in Montenegro, where he faced a four-month prison sentence in 2023 for using fake travel documents. Currently, he is awaiting decisions on extradition requests from the U.S. and South Korea.