The Terra protocol was developed overseas, and U.S. federal securities laws only apply to American companies, Terraform Labs has argued in a request to have a class-action lawsuit against it dropped.
Terraform was sued by Nick Patterson on his behalf and other UST investors. He alleged that the company had violated securities laws by selling unregistered securities in LUNA and its sister token UST, the algorithmic stablecoin whose collapse brought down a $40 billion ecosystem. He had also accused the company of mail and wire fraud, as well as RICO (Racketeer Influenced and Corrupt Organizations).
In a filing at the Northern District of California this week, Terraform argued the charges against it “apply domestically, not extraterritorially.”
“Lead Plaintiff’s securities claims based on his acquisition of UST challenge conduct that is not domestic: The federal securities laws do not apply because the [class-action lawsuit] does not allege that any of the protocols at issue were developed domestically, or even that Lead Plaintiff’s UST purchase was made in the U.S.,” Terraform argued.
Patterson claimed to have purchased UST and lost all his money after it collapsed. However, Terraform argues that he didn’t buy the tokens from the company or its founders. Do Kwon and the rest of the founders didn’t directly solicit him to buy the tokens, nor can he prove that they earned any fee or commission from the sales.
In his class-action lawsuit, Patterson also alleges the company violated securities laws based purely on similar allegations by the U.S. Securities and Exchanges Commission (SEC). However, the company further argues that the SEC’s legal action against Terraform is still pending and can’t be relied on for reference in another court.
“For all the foregoing reasons, Terraform and Mr. Kwon respectfully request that the Court dismiss the [lawsuit] with prejudice,” concludes the filing by Dentons LLP.
Kwon and Terraform are facing several other lawsuits across the U.S., South Korea, Singapore, and other jurisdictions. Some of these have been dropped, including one filed in the Southern District of New York, which was voluntarily dismissed without prejudice in January.
Kwon was arrested a month ago in Montenegro as he attempted to board a flight to Dubai with a forged passport.
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