Judge Rejects SEC’s Move to Obstruct Tron Crypto’s Defense in Ongoing Securities Lawsuit

New York District Judge Edgardo Ramos has dealt a blow to the Securities and Exchange Commission (SEC) in the ongoing lawsuit against Tron Foundation and its founder, Justin Sun.

The judge denied the SEC's motion to block one of the main arguments Tron founder relied on to counter the regulator's accusations. According to the court order, Sun and his associates are not challenging the enterprise prong of the Howey test.

SEC Challenges Tron Founder in Dismissal Argument

The recent ruling follows the SEC's lawsuit against the Tron Foundation, BitTorrent, Raiberry, and Justin Sun in March 2023. The regulator alleged that Sun and his associated firms sold unregistered crypto asset securities and engaged in manipulative trading.

Today we charged crypto entrepreneur Justin Sun and three of his wholly-owned companies for the unregistered offer and sale of crypto asset securities Tronix and BitTorrent.

Read more:https://t.co/4tXgKNof6Q

- U.S. Securities and Exchange Commission (@SECGov) March 22, 2023

The unregistered cryptocurrency securities mentioned in the lawsuit include BitTorrent (BTT) and Tron (TRX) tokens.

Sun's lawyers had filed a motion to dismiss the suit in March 2024. The defendants argued that the SEC lacked the authority to oversee crypto asset offerings to foreign users on global platforms.

The US securities regulator accused Sun of orchestrating a manipulative wash trading. It said Sun paid celebrities such as Akon, Soulja Boy, Jake Paul, and Lindsay Lohan to promote BitTorrent (BTT) and Tron (TRX).

In their motion to dismiss, the defendants cited a prong of the Howey test on common enterprise. However, the SEC tried to inhibit this argument in an August 12 letter.

In its letter, the commission asked Judge Ramos to reject the defendants' common enterprise argument or allow it to submit a sur-reply to address it.

Furthermore, the SEC argued that Sun's lawyers initially challenged just two elements of the Howey test, not the common enterprise prong. These two parts include the expectation of profits and investment of money.

Judge Denies SEC's Counter Argument

Much to the SEC's dismay, Judge Ramos shunned its motion and sided with Sun and Co.

The judge said the defendants have not introduced any new argument and are not challenging the common enterprise prong. Hence, he denied the SEC's motion to strike the new argument or request permission to file a sur-reply.

The order reads: 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."

However, this ruling only signals progress in the case; the court has yet to grant Sun and Tron's motion to dismiss. Therefore, the civil lawsuit against Sun and his associates will continue.

Sun and Co asked for dismissal in their defense, arguing that the SEC's jurisdiction is only in the US, not other countries. The argument claims that the SEC is overstepping its authority by trying to apply US securities law to foreign offerings on global platforms.

The defendant also asserts that the token sales mentioned in SEC claims were conducted overseas. The argument also stated that the companies took steps to avoid the US market during the sales, and the SEC never mentioned that they sold to any US residents.

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