Tron Foundation Challenges SEC's Extraterritorial Authority in Court

The Tron Foundation has filed a motion to dismiss a lawsuit from the U.S. Securities and Exchange Commission (SEC) in a New York federal court, arguing that the agency lacks jurisdiction over the foundation’s worldwide operations. The SEC alleges that Tron sold unregistered securities and engaged in wash trading, charges which Tron denies.

Tron Foundation Battles SEC in Court, Arguing Extraterritorial Reach of US Securities Laws

New York, NY - March 27, 2024 - The Tron Foundation, the entity behind the L1 blockchain Tron, has filed a motion to dismiss a lawsuit brought by the United States Securities and Exchange Commission (SEC) in a New York federal court. Tron argues that the SEC's attempt to apply U.S. securities laws to a business operation that predominantly takes place outside of the U.S. constitutes an overreach of the agency's authority.

In its motion to dismiss, Tron contends that the SEC lacks global regulatory authority. The Tron Foundation predicates its dismissal request on the facts of its business's global orientation and the resulting foreign clientele.

Additionally, Tron argues that secondary token sales on a U.S.-based platform serving global users do not automatically subject the tokens to U.S. securities laws.

A Nuance Defense

Tron maintains that its tokens fail to meet the criteria of investment contracts under the Howey Test, a method used to determine whether specific transactions represent the sale of securities. Tron disputes the SEC's characterization of its tokens as unregistered securities. Furthermore, Tron asserts that the SEC has failed to provide concrete evidence to substantiate its allegations of manipulative trading techniques.

Moreover, in its motion to dismiss the SEC's complaint, Tron cites procedural deficiencies, alleging insufficient factual allegations and an over-reliance on generic statements. The foundation argues that the SEC's allegations are imprecise, lack specific evidentiary support, and involve purportedly injured parties complicit in the alleged misconduct. Tron also invokes the "Major Questions Doctrine," a Supreme Court ruling that limits regulatory authority absent explicit congressional authorization.

The SEC has yet to respond to Tron's motion to dismiss but is expected to do so within the next two weeks. The outcome of this litigation will have significant implications for the regulation of digital asset offerings and the extraterritorial reach of U.S. securities laws.

Wash Trading Allegations

In addition to the SEC's allegations of unregistered security sales, the agency has also accused Justin Sun of engaging in "wash trading," the simulation of nonexistent market activity. According to the regulator, Sun uses this strategy to covertly subsidize celebrity endorsers of Tron tokens, such as Akon and Soulja Boy.

However, Tron contests these allegations, arguing that the SEC fails to identify specific victims of the alleged wash trades. The company maintains its innocence and suggests that the facts presented by the SEC are immaterial.

Heightened Concerns

As reported by CNF, the Tron blockchain has experienced a notable uptick in illicit transactions, particularly in the areas of drug trafficking and terrorism financing. Of particular concern is the revelation that the number of blockchain addresses associated with terrorist financing that receive the stablecoin Tether (USDT) has surged by 125% in 2023. According to TRM Labs, Tether remains the preferred stablecoin for organized crime.

It is noteworthy that the TRON ecosystem, particularly its decentralized autonomous organization (DAO), has witnessed a significant increase in USDT transactions since early February, with the daily average now exceeding two million. Recent data from IntotheBlock corroborates this surge, bringing the transaction volume close to the peak observed in January 2023.

"USDT transactions on @trondao have been on a notable upswing since early February, now averaging over 2 million transactions daily. With this increase, the number of transactions is approaching the peak witnessed in January 2023," IntotheBlock tweeted on March 27, 2024.