Terraform Labs and its co-founder, Do Kwon, are disputing the SEC’s request for a $5.3 billion fine. A recent submission to the U.S. District Court for the Southern District of New York by Terraform’s legal team proposed a reduced penalty of $1 million, arguing that the larger amount is excessive and unjustified.

The SEC’s move comes after a New York jury determined that Terraform and Kwon had deceived investors through their promotional statements about the digital currencies TerraUSD (UST), Luna, and wLUNA.

As part of its request for the recovery of illicit gains and additional penalties amounting to $5.3 billion, the SEC is seeking to prevent Kwon from holding management positions at firms issuing securities, with a requirement for detailed financial asset disclosures.

However, Terraform's attorneys claim that Luna Foundation Guard, not a defendant in the case, would cover any settlement payments. They contend that since LFG is not involved in the lawsuit, a fine exceeding $1 million is disproportionately high, making a $1 million penalty more appropriate.

This legal dispute stems from the significant drop in UST value in May 2022, which resulted in the loss of over $50 billion, complicating the financial situation for Terraform and its stakeholders.