Tron’s Parent Company Seeks Dismissal of SEC Lawsuit, Citing ‘Predominantly Foreign Conduct’

Ruholamin Haqshanas
Last updated: | 2 min read
Tron's Parent Company Seeks Dismissal of SEC Lawsuit

The entity behind the layer-1 blockchain Tron has requested the dismissal of a lawsuit filed by the United States Securities and Exchange Commission (SEC) against it, arguing that the regulator’s focus on “predominantly foreign conduct” goes beyond its jurisdiction. 

In a dismissal motion filed on March 28 in a New York federal court, the Tron Foundation stated that the SEC’s attempt to apply US security laws to predominantly foreign activities exceeds the regulator’s authority as it is not a global regulatory body.

The SEC’s lawsuit, filed in March of last year, targeted Tron founder Justin Sun, the Tron Foundation, the BitTorrent Foundation, and Rainberry Inc., the San Francisco-based parent company of BitTorrent, which Tron acquired in 2018. 

The SEC alleged that the sale of Tron and BitTorrent (BTT) tokens constituted unregistered securities offerings. 

Tron Says Tokens Were Sold to Overseas Users

The Tron Foundation, based in Singapore, argued in its motion that the tokens were sold exclusively overseas, with measures taken to avoid the U.S. market, and that the SEC did not claim they were initially offered or sold to U.S. residents.

Tron further argued that even if the SEC had jurisdiction, the tokens would not meet the criteria of investment contracts under the U.S. securities classification, as defined by the Howey test. 

The SEC also accused Justin Sun, a Chinese-born Grenadian citizen, of engaging in manipulative wash trading and undisclosed payments to celebrities like Soulja Boy and Akon to promote the tokens. 

Tron refuted these claims, stating that there were no specific facts demonstrating that the trades were wash trades or that they had any impact on individuals in the United States. 

Tron also pointed out that the SEC did not allege any victims in its case.

Among its other arguments, Tron contended that the SEC’s lawsuit lacked specific factual allegations, failed to outline each defendant’s role in each claim, and relied on generalizations and conclusions to support its claims. 

Tron also invoked the major questions doctrine, a Supreme Court ruling stating that Congress should pass laws instead of delegating authority to regulators. 

This argument has been used by other cryptocurrency firms, including Kraken and Coinbase, in their attempts to have SEC lawsuits dismissed.

The SEC is expected to respond to Tron’s motion within two weeks. 

Gary Gensler Wages War Against Crypto Companies

Over the past year, the SEC has filed numerous lawsuits against crypto firms, with SEC Chair Gary Gensler consistently asserting that most cryptocurrencies should be classified as securities.

For one, the agency initiated a civil case against Sam Bankman-Fried, co-founder of FTX. 

In addition to the case against Bankman-Fried, the SEC filed lawsuits against other major crypto players, including Binance, its CEO Changpeng Zhao, and Coinbase.

Many industry players and advocacy groups have called on the SEC to establish clear regulatory guidelines to foster innovation within the United States.

The SEC has reportedly issued subpoenas as part of its campaign to potentially classify Ethereum (ETH) as a security under its regulatory purview. 

“[T]here still are those who would like to whittle away at the SEC’s disclosure regime,” said the SEC chair.