Terraform Labs and Do Kwon Settle with SEC for $4.5 Billion

The U.S. Securities and Exchange Commission (SEC) and Do Kwon, the co-founder of Terraform Labs, have struck a significant settlement on fraud claims. This deal comes after the disastrous Terra ecosystem collapse, which cost investors $40 billion.

Terraform Labs must pay around $4.47 billion as part of the settlement, which was made public in a court document on Wednesday. This amount comprises around $467 million in prejudgment interest, a civil penalty of $420 million, and disgorgement penalties of almost $3.6 billion. Individually, Do Kwon must pay $110 million in disgorgement penalties and about $14.3 million in prejudgment interest.

An investor-fraudulent trial in New York concluded that Terraform Labs and Kwon had misled investors about the security of the Terra USD (UST) stablecoin and the capabilities of its blockchain technology. Based on evidence that investors were duped into spending over $2 billion on UST because they thought it would be a secure investment, the judgment was rendered.

Kwon has 30 days after the final judgment to deposit $4.7 million into an escrow account under the conditions of the settlement. Kwon's PYTH token holdings and the Luna Foundation Guard must also be liquidated to pay the penalties and interest owed. The civil penalty penalties will be applied to any excess from these transactions.

Numerous international enforcement organizations filed a lawsuit against Kwon and Terraform Labs, which the SEC has now settled.

When the SEC first proposed the penalty, it was set at $5.3 billion, the highest amount ever levied on a cryptocurrency enterprise. However, considering Kwon's large profits from Terraform's actions before the company's bankruptcy, the SEC justified the final figure as “conservative” yet “reasonable.”

SEC Pursues Terraform Labs: $5.3B Verdict

Learn about the SEC's pursuit of Terraform Labs, convicted of fraud in the $40B Terra ecosystem collapse. The $5.3B verdict sets a precedent in cryptocurrency regulation.

News 2024-04-24

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Kwon is now free on bail in Montenegro and might be extradited to South Korea or the United States, where he would be prosecuted on further counts. The collapse of the Terra ecosystem in May 2022 made ripples in the cryptocurrency space and brought attention to the dangers that algorithmic stablecoins entail.

In a similar legal event, a judge in March approved Terraform Labs' use of the money it still had to pay for legal fees. The SEC objected to this choice, mainly because Terraform chose to keep the legal firm Dentons on board. According to the SEC, this measure was taken to safeguard money from potential TerraUSD lawsuit decisions.

The lawsuit that the SEC filed against Terraform Labs and Kwon highlights the agency's continuous attempts to control the quickly developing cryptocurrency industry and holds important participants responsible for misleading actions. The consequences of the breakdown of the Terra ecosystem are still being felt, as Kwon may be subject to extradition and other legal disputes.

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