United

Gary

BitTorrent

The entity behind layer-1 blockchain Tron has asked a New York federal court to dismiss a United States Securities and Exchange Commission lawsuit against it, arguing the U.S. regulator targeting “predominantly foreign conduct.”
“The SEC is not a worldwide regulator,” and its effort to apply U.S. security laws to “predominantly foreign conduct” goes “too far,” the Tron Foundation said in a March 28 dismissal <a href="https://www.courtlistener.com/docket/67071330/55/securities-and-exchange-commission-v-sun/" target="_blank" rel="noopener nofollow">motion</a> in a New York federal court.
Last March, the <a href="https://cointelegraph.com/news/sec-files-lawsuit-against-tron-s-justin-sun-and-celebrities-over-crypto-securities-offering">SEC sued Justin Sun</a>, the&nbsp;<a href="https://cointelegraph.com/learn/what-is-tron-trx-and-how-does-it-work-a-beginners-guide">Tron</a> Foundation, file-sharing platform backers the BitTorrent Foundation and its San Francisco-based parent firm, Rainberry Inc. — the latter two <a href="https://cointelegraph.com/news/report-tron-cryptocurrency-founder-acquired-bittorrent">Tron acquired</a> in 2018 — alleging its sale of Tron (<a href="https://cointelegraph.com/tron-price-index">TRX</a>) and BitTorrent (BTT) tokens are unregistered securities offerings.
The Singapore-based Tron said in its motion that the SEC’s case is against “foreign digital asset offerings to foreign purchasers on global platforms” for which it has no authority.
Tron claimed the tokens were sold “entirely overseas” with steps taken to avoid the U.S. market and that the SEC didn’t allege they “were offered or sold initially to any U.S. residents.”
It said the SEC’s claim that later secondary token sales “on a U.S.-based platform serving users worldwide” were unregistered U.S. securities “is tenuous at best.”
<figure data-ct-non-breakable="true">
 <img src="https://s3.cointelegraph.com/uploads/2024-04/b0025952-2c10-4368-b882-3bbf56da8bfa.png" alt="" title="">
 <figcaption style="text-align: center;">
 Highlighted excerpt of Tron and Sun’s motion to dismiss. Source: CourtListener
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</figure>
Even if the SEC had authority, the tokens fail classification as investment contracts under the U.S. securities classification, the <a href="https://cointelegraph.com/news/crypto-and-securities-new-interpretation-of-us-howey-test-gaining-ground">Howey test</a>, Tron argued.
In its suit, the SEC also claimed Sun, a Chinese-born Grenadian citizen, engaged in “manipulative wash trading” — where one entity buys and sells a token to <a href="https://cointelegraph.com/news/decentralized-crypto-exchanges-wash-trading-report">simulate market activity</a> — and secretly paid celebrities, including 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 in its motion.
“The SEC also does not allege a single victim,” it added.
Related: <a href="https://cointelegraph.com/news/cftc-infringing-sec-authority-kucoin">CFTC commissioner warns against infringing on SEC’s authority in KuCoin case</a>
Tron’s other arguments included that the SEC failed to detail “factual allegations, laying out each defendant’s role in each claim” and relied 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.
Tron also argued the case should be dismissed under the major questions doctrine — a Supreme Court ruling saying Congress will pass laws and not give authority to regulators, which other crypto firms, including Kraken and Coinbase, <a href="https://cointelegraph.com/news/kraken-motion-dismiss-sec-lawsuit-dangerous-precedent-overreach">have cited in SEC lawsuit dismissal bids</a>.
The SEC should file its own response to Tron’s motion within two weeks. The SEC declined to comment beyond the public filings.
Magazine: <a href="https://cointelegraph.com/magazine/crypto-regulation-sec-chair-gary-gensler-final-say/">Crypto regulation — Does SEC Chair Gary Gensler have the final say?</a>
Update (April 1, 11:15 pm UTC): This article has been updated to include that the SEC declined comment.

Tron argues SEC ‘not a worldwide regulator’ and lawsuit goes ‘too far’

Cointelegraph

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