Tron’s Legal Tussle: Defending Foreign Grounds Against SEC

The Tron Foundation, the entity behind the layer-1 blockchain Tron, has filed a motion in a New York federal court to dismiss a lawsuit brought against it by the United States Securities and Exchange Commission (SEC). The Foundation argues that the SEC’s case targets “predominantly foreign conduct” beyond the regulator’s jurisdiction.

In its March 28 dismissal motion, the Tron Foundation stated, “The SEC is not a worldwide regulator,” and its attempt to apply U.S. security laws to “predominantly foreign conduct” goes “too far.”

Last March, the SEC sued Justin Sun, the Tron Foundation, the BitTorrent Foundation (acquired by Tron in 2018), and its parent firm Rainberry Inc. The SEC alleged that selling Tron (TRX) and BitTorrent (BTT) tokens constituted unregistered securities offerings.

The Singapore-based Tron Foundation claims in its motion that the SEC’s case is against “foreign digital asset offerings to foreign purchasers on global platforms,” over which the regulator has no authority. It argues that the tokens were sold “entirely overseas” with measures taken to avoid the U.S. market, and the SEC did not allege they “were offered or sold initially to any U.S. residents.”

Tron Disputes SEC Claims, Denies Manipulative Trading

Tron further contends that 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.” Even if the SEC had authority, the Foundation argues, the tokens fail to classify as investment contracts under the Howey test, the standard for determining whether an asset qualifies as a security.

In its lawsuit, the SEC also alleged that Justin Sun, a Chinese-born Grenadian citizen, engaged in “manipulative wash trading” and secretly paid celebrities, including Soulja Boy and Akon, to promote the tokens. Tron denies these claims, stating, “No particularized facts show that the trades were actually ‘wash trades,’ wrongfully executed for illegitimate purposes (much less affecting anyone in the United States).” The Foundation adds, “The SEC also does not allege a single victim.”

The case highlights the ongoing regulatory scrutiny and debates surrounding classifying and regulating cryptocurrencies and digital assets in the United States.

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