Terraform Labs, the company associated with the troubled TerraUSD stablecoin and LUNA, is preparing to contest the U.S. Securities and Exchange Commission's (SEC) $5.3 billion fine. The company is advocating for a reduced penalty of $1 million, pointing out jurisdictional concerns and disputing the SEC's allegations of fraud.

Under the leadership of co-founder Do Kwon, Terraform Labs is embroiled in a legal dispute following the collapse of the TerraUSD stablecoin in 2022. The SEC has accused the company of conducting a significant crypto asset securities fraud by purportedly raising billions from investors through unregistered transactions between April 2018 and May 2022.

Despite these accusations, Terraform Labs refutes the claims, asserting that the majority of token sales took place outside U.S. regulatory oversight. The company argues that there is insufficient evidence linking their actions to the significant investor losses related to the TerraUSD collapse. Therefore, they are advocating for a substantial reduction in the proposed fine to $1 million.

On the opposite side, the SEC maintains its accusations and proposed penalty, emphasizing the extensive losses suffered by investors amounting to $40 billion due to Terraform Labs' alleged actions. The regulator underscores the necessity for accountability and deterrence in cases of securities fraud, especially within the crypto market.

This legal confrontation follows Terraform Labs seeking Chapter 11 bankruptcy protection in January 2024, stating estimated assets and liabilities ranging from $100 million to $500 million. Meanwhile, Kwon, facing extradition from Montenegro to the U.S. after fleeing South Korea following an arrest warrant issuance, has received a four-month prison sentence in Montenegro for forging passport documents.

As both sides prepare for a prolonged legal battle, Kwon faces uncertainty regarding extradition to the U.S. or South Korea, and a final decision on the SEC's proposed fine awaits a court ruling.