Defending decentralization Tron fights back at SEC lawsuit

Tron Foundation, the organization behind the Layer 1 blockchain network Tron, has asked the United States Securities and Exchange Commission (SEC) to dismiss a securities lawsuit against the platform. 

According to a March 28 dismissal motion, the Tron Foundation has based its case on the grounds that the SEC is not a “worldwide regulator”. The foundation claims that the regulator has gone “too far” with its attempt to apply U.S. securities laws to the “predominantly foreign conduct.”

Tron has stated that the U.S. regulator’s case is against “foreign digital asset offerings” to foreign users on a “global platform.” With the firm headquartered in Singapore, the motion claims that the SEC has no jurisdiction over these matters.

The SEC filed a lawsuit against the Tron Foundation in March 2023. The lawsuit also targeted the firm’s CEO and founder, Justin Sun, the Bittorrent foundation, and Bittorent’s San Francisco-based parent firm, Rainberry Inc., both of which were acquired by Tron. 

The regulator alleged that Tron’s TRX token and BitTorrent’s BTT token were securities. As such, the accused is being charged for executing the sales of unregistered securities offerings. This is a trend that has been consistent when it comes to the SEC.

Further in the Motion, Tron alleged that its token sales were executed “entirely overseas” adding that it took additional steps to avoid the U.S. market. It also highlighted that the SEC’s suit doesn’t allege that the tokens were offered or sold “initially” to U.S. residents.

The firm went on to state that the SEC’s claim that the sale is an unregistered securities offering is “tenuous at best.” The foundation further argued that investments would fail classification as investment contracts under the Howey test. 

Tron’s suit also touched on the SEC’s claims that Tron founder Justin Sun was engaged in “manipulative wash trading.” The regulator also alleges that Sun secretly paid celebrities like Soulja Boy and Akon to promote the tokens. 

In its motion, Tron argued that there is no evidence to show that the trades “were actually ‘wash trades,’ wrongfully executed for illegitimate purposes (much less affecting anyone in the United States).”

“The SEC also does not allege a single victim, Tron wrote in its motion.

The motion also stressed that the SEC failed to provide details regarding factual allegations and each defendant’s role in these claims. It accused the regulator of generalizing and coming to conclusions “to support its already thin, frequently indiscernible claims.”

According to Tron, this vagueness forces both the defendants and the court to “speculate” the foundation of these allegations, thereby questioning the legitimacy of the lawsuit itself.

As such, Tron invoked the major questions doctrine—a legal principle emphasizing that legislative powers rest with Congress, not regulatory agencies—to argue for the lawsuit’s dismissal. Coinbase previously employed this Strategy in its suit against the SEC. 

With Tron’s formal request for dismissal filed, the SEC is expected to submit a counter-response in the coming weeks.