The SEC lacks the authority to regulate the sale of foreign digital assets to overseas investors on global platforms outside the United States. This is stated in the objection filed by TRON Foundation and its founder Justin Sun against the lawsuit submitted by the Commission.
In March 2023, the SEC accused the entrepreneur and three related companies of unregistered securities offerings in the form of TRON (TRX) and BitTorrent (BTT) tokens.
The agency also noted that Sun and TRON Foundation, BitTorrent Foundation, and Rainberry (formerly BitTorrent) manipulated the secondary market for TRX through “wash trading.”
The motion argues that the SEC “is not a global regulator.” Its efforts to apply U.S. securities laws “to predominantly foreign conduct” go “too far.”
Lawyers have asked the New York court to dismiss the lawsuits.
The document claims that the tokens found buyers “entirely abroad.” The organizers excluded the American market to avoid potential SEC claims that the assets could end up with U.S. residents.
The defendants emphasized that the SEC’s recognition of secondary token sales “on an American platform serving users worldwide” as an offering of unregistered securities is “at best unfounded.”
The attorneys explained that even assuming the SEC has authority, the tokens do not fall under the classification of investment contracts according to the Howey Test criteria.
Sun and the related companies also rejected the allegations of “wash trading.”
“No specific facts support the ‘fictitious’ nature of the transactions allegedly conducted for illegal purposes (let alone affecting anyone in the U.S.). The SEC also provides no data on victims,” the motion states.
The lawyers pointed out that the SEC failed to detail “factual allegations, outlining the role of each accused person/organization in each claim” and relied on “generalizations and conclusions to support its already sparse, often unspecified allegations.”
“For example, although the SEC alleges fraud, no substantial misrepresentations are provided. This forces the defendants (and the court) to speculate on the exact basis of such claims,” the attorneys wrote.
Sun and the related companies believe the case should be dismissed under the major questions doctrine—a Supreme Court decision stating that Congress will legislate and not delegate authority to regulatory agencies. Kraken and Coinbase used the same arguments in motions to dismiss SEC lawsuits.
The SEC must respond to TRON’s request within two weeks.
Earlier, several members of the U.S. House of Representatives sent a letter to the Commission demanding an explanation of the legality of Prometheum’s digital asset brokerage activities.
In July 2023, U.S. Republican Senator Tommy Tuberville urged the Department of Justice and the SEC to investigate Prometheum’s activities. He suspected the company’s CEO, Aaron Kaplan, of lying under oath during Congressional hearings and violating securities laws.
Analysts at TRM Labs estimated TRON’s share of the total volume of illicit cryptocurrency transactions at 45%. The majority involves USDT from Tether.
In January 2024, experts from the United Nations Office on Drugs and Crime noted the growing popularity of USDT as a tool for money laundering.
Responses for the organization were published by both the TRON team led by Sun and the issuer of the Tether coin.