Judge Sides With Tron Foundation in Ongoing Securities Fraud Lawsuit With SEC

The case is being heard in the U.S. District Court for the Southern District of New York and involves allegations that the Tron Foundation violated securities laws.

A federal judge has denied a request from the U.S. Securities and Exchange Commission (SEC) in its ongoing securities fraud lawsuit against the Tron Foundation and its founder, Justin Sun.

The case is being heard in the U.S. District Court for the Southern District of New York and involves allegations that the Tron Foundation, along with the BitTorrent Foundation and Rainberry (formerly known as BitTorrent), violated securities laws.

The SEC alleges that the Chinese entrepreneur and his companies conspired to distribute billions of cryptoassets and artificially inflate trade volumes in order to lure in investors. The federal agency also claims that Sun manipulated the price of BitTorrent’s BTT token.

The SEC sought a pre-trial conference or the filing of an additional response, accusing the Tron defendants of improperly introducing a new defense argument. The defense argued that the sales of Tron’s tokens, TRX and BTT, did not meet the “common enterprise” prong of the Howey Test, which is used to determine whether a transaction qualifies as an investment contract.

In its Aug. 12 letter to the court, the SEC accused Tron’s legal team of attempting to introduce this argument after their initial motion to dismiss had already been filed on May 33. Tron’s lawyers responded by accusing the SEC of trying to “manufacture a controversy” and urged the court to deny the SEC’s request.

Tron’s defense argued that their main challenge focused on the third prong of the Howey test, which concerns the expectation of profits from the efforts of others. They claimed that the SEC’s request for an additional reply, or sur-reply, misrepresented their stance and was unwarranted.

U.S. District Court Judge Edgardo Ramos sided with Tron’s defense, denying the SEC’s request for a pre-trial conference and the filing of a sur-reply. The judge pointed out that the defendants acknowledged they were not contesting the “common enterprise” aspect of the Howey test, leading to the denial of the SEC’s motion.

This ruling marks a setback for the SEC in its case against Tron and Justin Sun, as the legal battle continues in New York.

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