The SEC cannot regulate digital assets involved in the case because the UST stablecoin is a currency, not a security, lawyers for Kwon have said.
Lawyers for Do Kwon, founder of collapsed crypto issuer Terraform Labs, have requested a U.S. court to dismiss charges brought against him by the Securities and Exchange Commission partly because of the lack of jurisdiction, court filings from Friday show.
Kwon, who has been on the run from regulators since the collapse of his multibillion-dollar crypto enterprise in May 2022, was arrested in Montenegro last month for attempting to travel with falsified documents. Following his arrest, the SEC charged the South Korean national with securities fraud.
In its civil lawsuit against Kwon, the SEC failed to prove “personal jurisdiction” as products referenced by the regulator were “available to the world and not directed at U.S. persons,” a 47-page supporting document for a motion to dismiss the charges said. It also says that a digital asset involved in the case, the stablecoin UST, doesn’t fall under the purview of the SEC because it is a currency and not a security.
“Congress has not granted the SEC the power to regulate the digital assets at issue here,” the document filed with a U.S. district court in New York said.
The company also didn’t conduct any public offerings of securities that warranted an SEC registration, according to Kwon’s representatives. SEC Chairman Gary Gensler has been facing mounting criticism for regulating crypto through enforcement actions.
Kwon still faces criminal fraud charges from U.S. prosecutors as well as charges of capital-markets law violations in South Korea. Both countries have requested the extradition of the former executive who must first face trial in Montenegro.
The SEC can oppose the motion to dismiss by May 12.
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