The United States Securities and Exchange Commission (SEC) has suffered a setback in its case against Tron founder Justin Sun, as a New York District Judge denied a motion aimed at weakening Sun’s defense. The case, which began in March 2023, alleges that Sun and the Tron Foundation engaged in the unregistered offer and sale of securities, manipulative trading, and illegal promotion of crypto assets, specifically Tron (TRX) and BitTorrent (BTT) tokens. In response, Sun and his legal team moved to dismiss the lawsuit in April, arguing that the SEC lacks jurisdiction over foreign digital asset transactions conducted on global platforms.
Central to Sun’s defense is the argument that the SEC is overreaching by trying to apply U.S. securities laws to predominantly foreign conduct. The defense highlights that the tokens in question were sold outside the United States, with efforts made to exclude the U.S. market. The SEC countered with a claim that Sun’s defense introduced a new argument related to the “common enterprise” prong of the Howey test, which determines whether an asset qualifies as a security. Judge Ramos ruled in favor of the defense, stating that no new argument had been introduced and denying the SEC’s request to strike the argument.
In April, the SEC edited its Tron lawsuit against Sun and his crypto companies following his attempted dismissal of the litigation. In the updated court filings, the SEC claimed that Sun “traveled extensively” to the U.S. throughout his work on behalf of the Tron Foundation, the BitTorrent Foundation, and/or Rainberry. The SEC has been facing criticism for its regulation-by-enforcement approach to the crypto industry, with critics arguing that the agency has failed to establish a clear regulatory framework for cryptocurrencies. A coalition of seven U.S. states has come together to challenge the SEC’s regulation of cryptocurrency, arguing that it constitutes a “power grab” that would stifle innovation and harm the industry. SEC Commissioner Hester Peirce has also expressed concerns about the agency operating in an “enforcement-only mode” when it comes to regulating cryptocurrencies.
