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NY Judge Rejects SEC’s Efforts to Stymie Tron’s Arguments in Ongoing Securities Suit

Aug 19, 2024
  • A federal judge pushed back against a Securities and Exchange Commission legal tactic in the agency’s case against the Tron Foundation and founder Justin Sun.
  • The two sides are still battling it out in U.S. District Court for the Southern District of New York.

As a seasoned analyst with extensive experience in following financial regulatory cases, I find it intriguing to witness the cat-and-mouse game between regulatory bodies like the SEC and innovative entities such as Tron Foundation. In this particular case, it appears that Tron’s legal team has managed to outmaneuver the SEC, at least for now.

In simple terms, a judge in New York has declined the U.S. Securities and Exchange Commission’s (SEC) petition for a pre-trial meeting or to make an extra submission in their ongoing securities fraud case against the Tron Foundation and its creator, Justin Sun. This means that, as of now, there won’t be a pre-trial conference scheduled, and the SEC is not required to file any additional responses at this time in their lawsuit with the Tron Foundation.

The Securities and Exchange Commission (SEC) claims that lawyers representing the defendants of Tron – the Tron Foundation, Justin Sun, the BitTorrent Foundation, and Rainberry (previously known as BitTorrent) – have breached proper procedure by presenting a questionable defense argument.

In a court submission dated August 12th, the Securities and Exchange Commission (SEC) claimed that the defense was attempting to introduce a fresh argument – namely, that the sales of TRX and BTT did not fulfill the “common enterprise” aspect of the Howey Test, which is a tool used by the SEC to decide if a transaction can be classified as an investment contract. This new argument was presented after the Tron defendants had previously filed their motion to dismiss on May 30th.

In response to the SEC’s letter, Tron’s legal team wrote a counterargument to U.S. District Court Judge Edgardo Ramos of the Southern District of New York (SDNY), claiming that the SEC is attempting to fabricate an issue and asking the court to reject the SEC’s request for a pre-trial hearing.

In simpler terms, the legal team for Tron maintains that their defense is built on the understanding that the sales of BTT and TRX do not meet the third requirement of the Howey test, which is the expectation of profits from others’ efforts. They contend that a letter submitted by the SEC seeking permission to file an additional response (sur-reply) distorts and overlooks their argument regarding the third prong of the Howey test in this specific case, even though they emphasized it previously in bold and italics.

The letter from Tron’s attorney states that if the SEC is allowed to submit an additional response regarding the common enterprise tests (which were not addressed before), Tron will need to respond again with their position on this new point. Essentially, the SEC is asking for permission to present a new issue and expects three pages of response from Tron.

Ramos ultimately sided with Tron’s lawyers, ruling Monday to deny the SEC’s request.

“Since the defendants have admitted that they are not disputing the ‘common enterprise’ aspect of the Howey test, my recommendation is to allow their argument, which was submitted late, or to consider their sur-reply in this case. Therefore, the SEC’s motion to strike the late argument or for leave to file a sur-reply is denied.”

A representative for Tron declined to comment on “pending legal matters.”

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2024-08-20 00:18