Terraform Labs and its founder Do Kwon agreed to pay $4.47 billion to settle with the Securities and Exchange Commission after a jury found the firm liable for defrauding investors when the Terra/Luna crypto ecosystem collapsed in 2022.
U.S. District Judge Jed Rakoff, who oversaw the trial which ended in April, must approve of the proposed final judgment before it’s finalized. The proposed judgment was filed Wednesday in Manhattan.
The judgment includes a $420 million civil fine and $3.6 billion in disgorgement, and $467 million in interest.
Terraform, sued by the SEC in early 2023 for defrauding investors in “a multi-billion dollar scheme,” is credited with kicking off the turmoil in the crypto market in 2022 when its Terra and Luna stablecoins depegged from the U.S. dollar.
Terraform filed for bankruptcy in January, and the court will permit it to treat the sum of Wednesday’s settlement as an unsecured claim in its Chapter 11 case. The firm “shall use its best efforts to confirm” a bankruptcy plan by Sept. 30; and if no plan is effective by Oct. 30, the SEC may enforce Wednesday’s judgment against Terraform.
Disgorgement, interest and civil penalties owed to the SEC by Kwon, totaling $204.3 million, will not be deemed satisfied by a distribution in the bankruptcy case.
The total penalty was smaller than the $5.3 billion initially requested by the SEC in April, when the commission suggested the court choose a penalty that makes a message out of Kwon.
“Defendants have not shown remorse for their conduct, nor can there be any doubt that they are in position where additional violations are not only possible but likely are already occurring,” the SEC wrote at the time, according to court documents. “The Court should send an unequivocal message that this sort of brazen misconduct, and Defendants’ misbegotten attempt to excuse their behavior by crafting new rules and standards of behavior for crypto markets in contravention of the federal securities laws ... will not be tolerated.”
Kwon tried unsuccessfully to have the SEC’s case against him thrown out in October. He and Terraform are now permanently banned from trading crypto.
His fate remains in limbo, still, as courts where he currently is in Montenegro wrestle with whether to extradite him to his home country of South Korea or to the U.S. to face charges, according to Cointelegraph.
