Tron, the group behind layer-1 blockchain, has asked a New York federal court to dismiss a US Securities and Exchange Commission (SEC) lawsuit against it claiming that the US regulator targets “predominantly foreign conduct.” Tron said the tokens are entirely sold outside the United States. Last March, the US SEC issued a subpoena on Justin Sun, the Tron Foundation, and others. Several allegations were leveled against them, including selling unregistered securities, fraud and manipulating the market.
Tron asks for lawsuit dismissal
“The SEC is not a worldwide regulator,” attempting to apply US security laws to “predominantly foreign conduct” went “too far,” the Tron Foundation said in a March 28 dismissal motion.
Last year, the SEC sued Sun, Tron Foundation, BitTorrent Foundation and Rainberry Inc., the San Francisco-based parent company of the file sharing platform. Tron claimed that the sale of Tron tokens and BitTorrent tokens (BTT) are unregistered securities offerings, the latter two Tron acquired in 2018.
Singapore-based Tron said in its motion that the SEC’s case is against “foreign digital asset offerings to foreign purchasers on global platforms” which it can’t do. The SEC did not allege that the tokens were “expedited or sold to any United States residents initially.” Tron claimed that the tokens were sold “entirely overseas.”
It said the SEC’s claim that later secondary token sales “on a US-based platform serving users worldwide” were unregistered US securities “is tenuous at best.” Tron argued that even if the SEC had authority, the tokens would fail the Howey test, which classifies US securities as investment contracts.
Did the US SEC go ‘too far’?
SEC also claims Sun, a Chinese-born Grenadian citizen, engaged in “manipulative wash trading” where one entity buys and sells a token to simulate market activity and secretly paid celebrities like Soulja Boy and Akon to promote the tokens.
“No particularized facts show that the trades were actually ‘wash trades,’ wrongfully executed for illegitimate purposes (much less affecting anyone in the United States),” Tron wrote. “The SEC also does not allege a single victim,” it added.
Tron also said the SEC failed to make “factual allegations, laying out each defendant’s role in each claim” and depended on “generalizations and conclusions to support its already thin, frequently indiscernible claims.”
“For example, although the SEC purports to allege fraud, no material misstatement is alleged, leaving Defendants (and the Court) to speculate on the precise basis for those claims,” it wrote.
Aside from that, Sun’s firm argued the lawsuit should be dismissed under the major questions doctrine – a Supreme Court ruling that said Congress passes laws, not regulators. Several other crypto firms have tried to dismiss SEC lawsuits as well, including Kraken and Coinbase. Within two weeks, the SEC should respond to Tron’s motion.
