In a recent legal development, lawyers representing Terraform Labs and its co-founder, Do Kwon, have argued that a $1 million fine would be more suitable, contrasting sharply with the $5.3 billion fine proposed by the U.S. Securities and Exchange Commission (SEC). This legal stance was outlined after the SEC recommended that Kwon and Terraform should be liable for approximately $4.7 billion in disgorgement and prejudgment interest, along with civil penalties of $420 million and $100 million respectively.

The legal team for Kwon and Terraform submitted their argument in a court filing last week, stating that the court should reject any injunctive relief or disgorgement and should impose a civil penalty of no more than $1 million against Terraform Labs (TFL).

The case against Terraform and Kwon began when the SEC charged them in February 2023 concerning the operations around their algorithmic stablecoin, Terra USD (UST), which dramatically collapsed in May 2022. The collapse resulted in over $50 billion in losses, attributed to the stablecoin’s dependency on market algorithms and its linkage to the governance token, Luna, to maintain price stability.

This month, a jury found Terraform and Kwon liable for civil fraud, concluding they misled investors. The jury’s deliberations focused on allegations that Kwon and Terraform violated federal securities laws through fraudulent activities linked to the buying and selling of Terraform securities. Prior to this, Judge Jed Rakoff had granted summary judgment in favor of the SEC on claims that Terraform and Kwon had offered and sold unregistered securities.

The discrepancy between the proposed penalties by the SEC and Terraform’s counterproposal highlights the ongoing legal battle and its potential implications for the cryptocurrency industry, particularly concerning the regulation and operation of algorithmic stablecoins.