TL;DR
- Terraform Labs and its former CEO, Do Kwon, have agreed to pay $4.5 billion to the U.S. Securities and Exchange Commission (SEC) as part of a civil fraud settlement.
- The case revolves around the collapse of TerraUSD and TerraLuna in 2022, accused of raising funds without proper registration, violating federal securities laws.
- Severe restrictions will be imposed on the company and Kwon, from banning crypto transactions to excluding them from executive positions.
A significant development has occurred in the crypto industry as Terraform Labs and its former CEO, Do Kwon, have agreed to pay $4.5 billion to the U.S. Securities and Exchange Commission (SEC) as part of a civil fraud case settlement. The agreement will leave a mark on the digital assets sector, with significant implications for both the company and the crypto ecosystem at large.
The case centers on Terraform Labs, known for its role in the development and collapse of TerraUSD and TerraLuna, two interconnected digital assets that suffered a dramatic downfall in 2022. According to the SEC, between April 2018 and May 2022, the company and Kwon raised billions of dollars without properly registering these digital securities with regulatory authorities. The company allegedly violated federal securities laws, leaving investors with substantial losses when it collapsed.
Terraform Labs Update: Confirmation of @SECGov $4.5b penalty.
"A jury found Kwon and Terraform liable for intentionally and recklessly orchestrating one of the largest securities frauds in US history" 👀#Terraform #SEC pic.twitter.com/aGYMAtVxPY
— MartyParty (@martypartymusic) June 12, 2024
SEC Penalizes Terraform Labs to Set an Example
As part of the settlement, in addition to the fine payment, Terraform and Kwon will face severe restrictions. Both are prohibited from engaging in the buying or selling of crypto assets, including all tokens within the Terra ecosystem. Furthermore, Kwon has been barred from holding executive or director positions in public companies, significantly limiting his future activities in the financial sphere.
The $4.5 billion fine breaks down to approximately $3.75 billion for disgorgement, over $460 million in prejudgment interest, and a civil penalty of $420 million. Part of this agreement also includes an additional $200 million payment from Kwon to the Terraform bankruptcy estate, aimed at compensating investors affected by the TerraUSD collapse.
The SEC has been firm and uncompromising in its statement, stating that these measures aim to remedy the damages caused by the fraud and send a deterrent message to potential violators of federal securities laws. The regulator’s attorneys have requested Judge Jed Rakoff of the Southern District of New York to approve the agreement, arguing that it is crucial to ensure fair recovery for affected investors and to strengthen the integrity of the digital financial market in the United States.
