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Terraform Labs, Do Kwon Hit with $4.5B Penalty in SEC Fraud Case

Terraform Labs, Do Kwon Hit with $4.5B Penalty in SEC Fraud Case

Jun 12, 2024

Terraform Labs, Do Kwon Hit with $4.5B Penalty in SEC Fraud Case

Terraform Labs and its former CEO Do Kwon have reached a substantial $4.47 billion settlement with the U.S. Securities and Exchange Commission (SEC) following charges related to the collapse of the algorithmic stablecoin Terra USD (UST) in 2022. This proposed settlement, which includes disgorgement, prejudgment interest, and civil penalties, was submitted to Judge Jed Rakoff of the U.S. District Court for the Southern District of New York for approval.

The SEC filed the proposed final consent judgment on Wednesday, which outlines the terms of the settlement. Under the agreement, Terraform Labs is to pay $3.58 billion in disgorgement, $420 million in civil penalties, and both Kwon and the company will be banned from buying or selling crypto asset securities, including all tokens in the Terra ecosystem. Additionally, the settlement prevents Kwon from serving as an officer or director of any public firm, and he is personally responsible for paying $204 million to a Terraform bankruptcy estate for distribution to investors harmed by the collapse.

According to the SEC's court filing, the proposed judgment aims to address the extent of the alleged fraud and to deter similar misconduct in the future. It also seeks to provide a mechanism for meaningful and swift recovery for investor victims.

The SEC charged Terraform Labs and Kwon in February 2023 with defrauding and misleading investors over the Terra USD stablecoin, which saw a dramatic fall in value a year prior. Following a New York jury's verdict in April, which found Kwon and Terraform Labs liable for civil fraud, the terms of the settlement were negotiated. Notably, the SEC's settlement offer was initially $5.3 billion in fines, while Terraform Labs suggested a significantly lower figure of $1 million in penalties, without disgorgement or injunctions, in its opposition to the SEC's motion for final judgment.

Do Kwon, who is currently in custody in Montenegro pending a decision on his extradition, was not present during the trial. Terraform Labs, now in Chapter 11 bankruptcy, reportedly has about $150 million in assets remaining.

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