Terraform Labs Agrees to $4.5 Billion Settlement in SEC Fraud Case

Former TerraForm CEO Do Kwon
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The collapsed crypto company Terraform Labs Pte. Ltd, the operator behind the Terra/Luna scheme, has agreed to a total monetary remedy of $4.47 billion settlement with the U.S. Securities and Exchange Commission (SEC) after a jury found them liable for defrauding cryptocurrency investors. The former CEO, Do Kwon, has to pay monetary relief totaling. Furthermore, Kwon is required to transfer at least $204,320,196 to the Terraform bankruptcy estate.

Terraform Labs, the company responsible for the catastrophic collapse of the Terra/Luna scheme in 2022, and its CEO Do Kwon, were found liable by a New York jury in April. The SEC had accused them of orchestrating a fraudulent scheme that severely impacted the crypto market.

Court documents filed in Manhattan federal court on Wednesday outline the settlement terms. Terraform Labs will not only pay the substantial monetary penalty but also face a ban on participating in any crypto asset securities transactions. “The entry of this judgment would ensure the maximal return of funds to harmed investors and put Terraform out of business for good,” the SEC stated in a letter to the court.

As part of the agreement, Kwon will pay $204 million and be barred from serving as an officer or director of any public company. This ban is intended to prevent future misconduct and uphold the integrity of federal securities laws.

The proposed consent judgment both addresses the magnitude of this fraud by imposing significant remedial, punitive, and deterrent remedies, including a multi-billion dollar judgment against Defendants, and provides for meaningful and speedy recovery for investor victims that collectively lost billions when Defendants’ scheme collapsed.

SEC proposal (link)

However, whether the amount will ever be paid is another matter, as Terraform filed for bankruptcy in January. Reuters reports that the fines will be treated as an unsecured claim against the Chapter 11 case, which Terraform is liquidating.

The resolution also requires Terraform to seek court approval for a liquidation plan as part of its ongoing Chapter 11 bankruptcy case in Delaware. Additionally, Do Kwon must transfer at least $204 million to the company’s bankruptcy estate to facilitate investor repayments.

The SEC’s complaint detailed how, between April 2018 and May 2022, Terraform and Do Kwon raised billions from investors by selling a variety of interlinked digital securities, many of which were not properly registered with regulatory authorities. Among these assets was TerraUSD, a stablecoin developed by Kwon that collapsed in 2022, causing widespread disruption in the cryptocurrency market.

Kwon, currently wanted by U.S. and South Korean authorities on separate criminal charges, remains in Montenegro, contesting his extradition.

The crackdown on Terraform Labs is part of a broader effort by U.S. authorities to regulate the cryptocurrency industry and protect investors. This year has seen high-profile cases, including the sentencing of FTX founder Sam Bankman-Fried (SBF) to 25 years in prison for fraud and Binance founder Changpeng Zhao (CZ) receiving a four-month jail term alongside a $4.3 billion fine for regulatory violations.

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