The entity behind the collapsed Terra blockchain, Terraform Labs, and its former CEO Do Kwon have agreed to pay a combined $4.5 billion to settle civil fraud charges brought by the U.S. Securities and Exchange Commission (SEC).
The settlement agreement, filed in the Southern District of New York court, would also permanently bar Kwon and Terraform Labs from buying and selling cryptocurrency securities, including every token within the Terra ecosystem.
The SEC accused Kwon and Terraform Labs of misleading investors about the stability of TerraUSD (UST), an algorithmic stablecoin that was designed to maintain a 1:1 peg with the U.S. dollar. The collapse of TerraUSD in May 2022 triggered a wider crypto market downturn, with an estimated $40 billion in losses for investors.
In a letter urging the court to approve the settlement, SEC lawyers argued that it would "send an unmistakable deterrent message" to those involved in “brazen misconduct” and “all those who seek to evade the requirements of the federal securities laws by crafting new standards of behavior for crypto assets that fall under the purview of the federal securities laws.”
A New York jury found Kwon and Terraform Labs liable on the SEC's charges in April. Kwon, who is currently in custody in Montenegro facing extradition proceedings to either the US or his native country South Korea, was not present for the trial. Terraform Labs’ current CEO and Kwon both agreed to the terms of the settlement, according to court documents.
The settlement agreement, which requires the approval of the presiding judge, U.S. District Court Judge Jed Rakoff, outlines a breakdown of the $4.47 billion payment Terraform Labs and Kwon must pay the SEC in disgorgement, prejudgment interest, and civil penalties. Notably, Kwon is personally liable for at least $204 million.
This settlement represents a compromise between the SEC's initial proposal of $5.3 billion in fines and Terraform Labs' counteroffer of a $1 million penalty. During the trial, Terraform Labs, which has filed for Chapter 11 bankruptcy protection, revealed it has approximately $150 million in remaining assets.
