SEC Strikes Historic $4.47 Billion Settlement with Terraform Labs and Founder Do Kwon

• The US Securities and Exchange Commission (SEC) strikes a $4.47 billion deal with Terraform Labs with Do Kwon expected to pay a $80 million civil fine.

• The total judgment is said to include $4.05 billion of disgorgement plus interest and a $420 million civil fine.

In April, the co-founder and former CEO of Singapore-based cryptocurrency firm Terraform Labs, Do Kwon, was found liable by the New York civil Jury for defrauding investors by false pretense. Two months after this development, Terraform Labs is reported to have reached a historic $4.47 billion civil settlement with the U.S. Securities and Exchange Commission (SEC), and the proposed final judgment was filed in the Manhattan federal court on June 12.

However, this is pending the approval of the US. District Judge Jed Rakoff presided over the trial which ended on April 15.

Previous Position of SEC and Terraform Lawyers

Earlier, Crypto News Flash reported that the SEC had proposed a staggering amount of $5.3 billion in fines and penalties. However, Do Kwon’s lawyers proposed $1 million instead. With the current judgment, Terraform is expected to pay $4.05 billion in disgorgement and interest, in addition to a $420 million civil fine.

Also, Do Kwon has been imposed a $80 million civil fine with a requirement to send $204.3 million to Terraform’s bankruptcy estate. On top of that, he has agreed to a crypto transactions ban.

Breaking News: SEC reaches $4.47 billion settlement with #Terraform Labs and founder Do Kwon for defrauding investors in #TerraUSD and #Luna tokens collapse. Kwon, facing extradition, agrees to ban crypto transactions. This record penalty signals a crackdown on crypto fraud.… pic.twitter.com/V2pNohgIaX— Collin Brown (@CollinBrownXRP) June 13, 2024

According to the SEC, the judgment would ensure that harmed investors get a maximum return on their funds.

Entry of this judgment would ensure the maximal return of funds to harmed investors and put Terraform out of business for good. Thus, this proposed judgment is fair, reasonable, and in the public interest.

Background of the Story

In 2022, Terraform Labs’ tokens collapsed, losing $40 billion of their value and dragging almost the entire crypto ecosystem to “its knees.” Do Kwon, who was at the center of all these developments owned 92% of Terraform Labs and appeared as one of the original authors of the April 2019 whitepaper.

Its stablecoin Terra USD (UST) was pegged to the US dollar but was designed to keep its value by following an algorithm to transact with a separate currency called Luna. The algorithm was meant to sell Luna in exchange for UST whenever the stablecoin value dipped below $1. In this case, most of the UST supply was destroyed to artificially inflate the value back in line with its pegged currency.

Do Kwon’s Project Challenges

According to a complaint filed by the SEC, this initiative had its first major challenge in 2021 when the UST value fell below $1. At that time, the leaders re-established the peg by convincing investors to purchase a huge amount of the asset. Later, Kwon reportedly bragged that Terraform’s algorithm saved the project without any human intervention.

In May 2022, the market experienced a huge sell-off, de-pegging the stablecoin from the USD. This time, the value fell by 99.9% in less than a week. Interestingly, this destabilized the “foundation” of the crypto market, dragging almost all the assets far below their all-time highs. According to the SEC, investors lost about $40 billion in the process.

Do Kwon was also accused of making up use cases for Terraform through deceptive ways. He reportedly informed investors that the Korean payments app Chai was using Terraform blockchain to facilitate transactions between merchants and consumers. Later, his company replicated the Chai payment on his platforms to create the impression that the blockchain was handling all of its transactions.

According to Gurbir S. Grewal, director of the SEC’s enforcement division, the lack of registration and compliance encourages these fraudulent schemes, affecting real consumers in the long run.

At press time, Terra Classic (LUNC) was trading at $0.0001 after surging by 1% in the last 24 hours.