The Securities and Exchange Commission (SEC) reports that Terraform Labs PTE, Ltd. and founder Do Kwon will pay a $4.5 billion penalty as they have been found guilty of a “years-long fraud.” It was previously reported that the SEC was seeking a $5.3 billion settlement.
Do Kwon and Terraform were found guilty this past April.
Terraform created and offered an algorithmic stablecoin – TerraUSD (UST). The stablecoin, along with its sister coin, Luna, collapsed in 2022 and has been described as one of the main factors in the crypto winter that saw multiple digital asset firms fail.
The SEC notes that in May 2022, after TerraUD dropped in value against the US dollar, the price of UST and Terraform’s other tokens cratered to around zero. This wiped out $40 billion in market value, causing profound loss for holders.
SEC Chair Gary Gensler commented on the judgment:
“Terraform and Do Kwon’s fraudulent activities caused devastating losses for investors, in some cases wiping out entire life savings. Their fraud serves as a reminder that, when firms fail to comply with the law, investors get hurt. Terraform and Kwon fought our efforts to investigate – taking a fight over investigative subpoenas all the way to the Supreme Court. Thankfully, with this settlement, the victims of their massive fraud will now get some justice.”
The SEC charged Terraform and Kwon in the US District Court for the Southern District of New York on February 16, 2023, with securities fraud and for offering and selling securities in unregistered transactions.
As part of the settlement, Terraform has agreed to pay $3,586,875,883 in disgorgement, $466,952,423 in prejudgment interest, and a $420,000,000 civil penalty.
Terraform also agreed to stop selling its crypto asset securities, wind down its operations, replace two of its directors, and distribute its remaining assets to investor victims and creditors through a liquidation plan, subject to approval by the court in Terraform’s pending bankruptcy case.
Kwon agreed to pay $110,000,000 in disgorgement and $14,320,196 in prejudgment interest on a joint and several basis with Terraform, as well as an $80,000,000 civil penalty.
Kwon is also being pursued on criminal charges. He is currently in Montenegro awaiting extradition, which has reportedly been put on pause.
