Terraform Labs agrees to pay $4.47B fine with SEC
The U.S. Securities and Exchange Commission (SEC) disclosed that Terraform Labs along with its erstwhile Chief Executive Officer, Do Kwon, have concurred to settle approximately $4.5 billion, as outlined in judicial documents unveiled on Wednesday.
In the aftermath of the catastrophic $40 billion downturn of UST and LUNA in 2022, the entities responsible were adjudged culpable of civil deceit last month. A jury in Manhattan concluded that Kwon and Terraform Labs had provided misleading assurances regarding the robustness and prosperity of the Terra blockchain ahead of its collapse.
Within the realm of this arrangement, Kwon along with Terraform Labs will remit $4.5 billion in fraudulent gains (inclusive of interest), in addition to facing a $420 million fine as a civil sanction. Moreover, they will face a future ban on “participating in transactions involving crypto asset securities.”
Kwon—now embroiled in legal battles against his extradition to the United States or his homeland, South Korea, while detained in Montenegro—will be mandated to disburse millions from his personal finances.
Under the terms of the settlement, Kwon is to part with $204 million in fine, a sum which, according to the SEC, aims to “deliver a clear deterrent signal.” This figure nearly matches the entirety of the relief the agency had initially pursued from Kwon for his malpractices, as mentioned in the document.
The conveyance of funds from Kwon to the bankruptcy estate of Terraform Labs is stipulated within the arrangement, pending endorsement from Judge Jed Rakoff of the U.S. District Court Southern District of New York.
The downfall of UST and LUNA in 2022 triggered a domino effect of turmoil within the cryptocurrency ecosystem, culminating in the downfall of the FTX cryptocurrency exchange. As an algorithmic stablecoin, UST endeavored to maintain its dollar peg via trading incentives, contrary to the asset-based backing typical of most stablecoins, until its failure.
Kwon found himself under arrest in Montenegro the past year for attempting to board a flight with a forged passport. Amid ongoing legal wrangling, Montenegro has yet to decide on Kwon’s subsequent extradition destination to address criminal allegations.
In the U.S., Kwon faces fraud charges levied by the Department of Justice related to the implosion of Terra. Concurrently, in South Korea, he faces separate accusations encompassing fraud, bribery, transaction volume manipulation, and breaches of capital markets laws.
Despite a four-month confinement period in Montenegro, the disgraced crypto tycoon was released but remains in the region pending resolution of his extradition proceedings.
