Tron Founder Justin Sun Scores Early Victory in SEC Showdown

TLDR

• A New York District Judge denied the SEC’s attempt to challenge one of Tron founder Justin Sun’s main arguments in his case dismissal efforts.
• The SEC accused Sun’s lawyers of improperly introducing a new argument about the “common enterprise” element of the Howey test.
• Judge Ramos ruled that Sun’s team had not introduced a new argument, siding with the defendants.
• Sun’s main defense is that the SEC lacks authority over “foreign digital asset offerings to foreign purchasers on global platforms.”
• The case stems from SEC allegations that Sun and his companies engaged in unregistered offers and sales of crypto asset securities.

A federal judge in New York has denied a request from the U.S. Securities and Exchange Commission (SEC) in its ongoing lawsuit against the Tron Foundation and its founder, Justin Sun. The ruling marks a setback for the SEC in its case alleging unregistered securities offerings and market manipulation.

On August 19, 2024, United States District Court Judge Edgardo Ramos rejected the SEC’s motion to either strike an argument made by Sun’s defense team or allow the agency to file an additional response.

The SEC had claimed that Sun’s lawyers improperly introduced a new argument regarding the “common enterprise” element of the Howey test, which is used to determine whether a transaction qualifies as an investment contract under U.S. securities law.

The case stems from a lawsuit filed by the SEC in March 2023. The agency accused Sun and his companies of engaging in “the unregistered offer and sale, manipulative trading, and unlawful touting of crypto asset securities” related to the Tron (TRX) and BitTorrent (BTT) tokens.

In April, Sun and the Tron defendants requested a dismissal of the suit. Their main argument centers on the claim that the SEC lacks authority over “foreign digital asset offerings to foreign purchasers on global platforms.” The defense contends that the tokens were sold “entirely overseas” and that steps were taken to avoid the U.S. market.

The recent dispute arose when the SEC interpreted a statement in the defendants’ reply brief as a new challenge to the “common enterprise” prong of the Howey test. In an August 12 letter, the SEC asked Judge Ramos to either disregard this argument or allow them to file a “sur-reply” to address it.

Sun’s legal team responded by accusing the SEC of attempting to “manufacture a controversy.” They argued that their defense primarily focuses on challenging the third prong of the Howey test – the expectation of profits from the efforts of others – rather than the common enterprise element.

Judge Ramos sided with the defendants, stating in his order: “In light of defendants’ concession that they are not challenging the ‘common enterprise’ element of the Howey test, the SEC’s letter motion to strike the untimely argument or for leave to file a sur-reply is DENIED.”

This ruling represents a procedural victory for Sun and the Tron Foundation, as it prevents the SEC from introducing additional arguments at this stage of the proceedings. However, the overall case is still ongoing, and its outcome remains uncertain.

The lawsuit against Sun and his associated companies is part of a broader trend of increased regulatory scrutiny in the cryptocurrency industry.

The SEC has been actively pursuing cases against various crypto projects and exchanges, arguing that many digital assets should be classified as securities and therefore fall under its regulatory purview.

Sun’s defense team maintains that the SEC is overreaching in its attempt to apply U.S. securities laws to “predominantly foreign conduct.”

They argue that the tokens in question were not initially offered or sold to U.S. residents and that the SEC is not a “worldwide regulator.”