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Tron Challenges SEC’s Jurisdiction, Claiming Overreach in Lawsuit

ByDayne Lee

Apr 2, 2024
Tron Challenges SEC's Jurisdiction, Claiming Overreach in Lawsuit

The organization behind the layer-1 blockchain Tron has formally requested a New York federal court to dismiss a lawsuit filed by the United States Securities and Exchange Commission (SEC), critiquing the regulator’s attempt to apply U.S. securities laws to activities it deems predominantly foreign. In a motion filed on March 28, the Tron Foundation articulated its stance that the SEC’s efforts to extend its regulatory reach to foreign digital asset transactions exceed its jurisdictional bounds.

SEC’s Allegations Against Tron

In March of the previous year, the SEC initiated legal proceedings against Justin Sun, the Tron Foundation, and associated entities, including the BitTorrent Foundation and Rainberry Inc.—entities acquired by Tron in 2018. The regulatory body alleges that the sale of Tron (TRX) and BitTorrent (BTT) tokens constituted unregistered securities offerings. However, the Singapore-based Tron counters this allegation by asserting that the token sales occurred entirely outside the U.S., with deliberate measures taken to exclude the U.S. market, thus falling outside the SEC’s regulatory purview.

The Basis of Tron’s Dismissal Motion

Tron’s defense challenges the SEC’s claim on several fronts:

  • Jurisdiction Over Foreign Conduct: Tron argues that the SEC’s case focuses on digital asset offerings to international buyers on global platforms, a domain where the SEC lacks authoritative jurisdiction.
  • Secondary Sales on U.S. Platforms: The Foundation contests the SEC’s position that subsequent sales of the tokens on U.S.-based platforms serving an international user base should be considered unregistered U.S. securities.
  • Classification Under Howey Test: Even under the SEC’s scrutiny, Tron maintains that the tokens do not meet the criteria of investment contracts as defined by the Howey test, a key standard for determining what constitutes security in the U.S.

Contesting SEC’s Claims of Fraudulent Activities

The SEC’s lawsuit further accuses Justin Sun of engaging in manipulative practices, such as wash trading, and covertly compensating celebrities for promoting the tokens. Tron rebuffs these accusations by asserting the lack of concrete evidence to substantiate claims of wash trades or that any fraudulent activities impacted U.S. residents. Notably, Tron highlights the absence of allegations regarding any victims of the purported misconduct.

The Foundation’s motion for dismissal also criticizes the SEC’s reliance on generalized assertions and the lack of specific allegations detailing each defendant’s involvement in the claimed violations. Tron argues that the regulator’s fraud allegations lack concrete misstatements, leaving both the defendants and the court to conjecture the basis of these claims.

Furthermore, Tron invokes the major questions doctrine, a legal principle that posits regulatory authority rests primarily with Congress, not with regulatory agencies. This argument echoes similar defense strategies employed by other crypto firms, such as Kraken and Coinbase, in their own legal battles with the SEC.

The SEC is expected to respond to Tron’s dismissal motion within the forthcoming two weeks. As of now, the regulatory body has not publicly commented on Tron’s motion to dismiss.

Tron’s legal challenge to the SEC’s lawsuit represents a pivotal moment in the ongoing discourse around the regulation of digital assets and the jurisdictional limits of U.S. regulatory bodies. As the crypto industry watches closely, the outcome of this legal battle could have far-reaching implications for the regulatory landscape of digital currencies, especially concerning the treatment of global transactions under U.S. securities laws.

Featured image credit: Tingey Injury Law Firm via Unsplash

Dayne Lee

With a foundation in financial day trading, I transitioned to my current role as an editor, where I prioritize accuracy and reader engagement in our content. I excel in collaborating with writers to ensure top-quality news coverage. This shift from finance to journalism has been both challenging and rewarding, driving my commitment to editorial excellence.

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