SEC Seeks Over $5 Billion in Penalties from Terraform Labs in Landmark Crypto Fraud Case

SEC v Coinbase fight over definition of security tokens
Spread financial intelligence

The next billion-dollar compliance case after the landmark settlement between U.S. authorities and Binance in the crypto space has touched ground. The U.S. Securities and Exchange Commission (SEC) is pushing for significant financial penalties against Terraform Labs and its co-founder, Do Kwon, following their involvement in a major fraud case. The SEC’s legal actions come after a jury verdict, which found both parties culpable of defrauding investors through their crypto offerings.

On April 5, 2024, after a nine-day trial, a jury in New York found Terraform Labs PTE Ltd. and Do Kwon liable for defrauding investors in crypto asset securities. Previously, the Court found that Terraform Labs and Kwon unlawfully offered and sold crypto asset securities in violation of the registration provisions of the Securities Act of 1933.

According to court documents filed on April 19, the SEC is demanding approximately $4.7 billion in disgorgement and prejudgment interest from Terraform Labs, along with $520 million in civil penalties. This includes $520 million expected from Terraform and an additional $100 million from Do Kwon.

The discrepancy between the SEC’s demands and the defendants’ counterproposals is remarkable. Terraform Labs has proposed a maximum civil penalty of just $3.5 million. Even more striking is Do Kwon’s suggestion of a mere $800,000 in penalties. Alongside financial penalties, the SEC seeks to bar Kwon from serving as an officer or director of any security issuer. It mandates full disclosure of his banking accounts and assets to prevent future misconduct.

This case epitomizes the SEC’s rigorous stance on crypto regulation, emphasizing strict compliance with federal securities laws. The SEC’s filing underlines a lack of remorse from the defendants and a significant risk of recurrent violations.

The proposed remedies, which also include a “conduct-based injunction” against Terraform to prevent future misconduct, are pending judicial approval.

This case arrives on the heels of other high-profile settlements in the crypto sector, including a $4.3 billion agreement with Binance and its former CEO, Changpeng Zhao, underscoring the SEC’s commitment to enforcing compliance and transparency within the burgeoning digital asset marketplace.

Leave a Reply

Your email address will not be published. Required fields are marked *