Terraform Labs agreed to pay $4.5 billion to settle the fraud case with the SEC. The deal has been agreed upon by SEC and Du Kwon.
Terraform Labs and its former CEO Do Kwon have agreed to pay nearly $4.5 billion to settle a lawsuit filed by the U.S. Securities and Exchange Commission. The firm collapsed in 2022, which wiped out $40 billion in investor assets and shook the cryptocurrency world. The SEC seeks the court’s approval of a settlement with the firm. If accepted, it would ban Kwon and the firm from buying or selling all crypto asset securities.
Terraform Labs Accusations
The SEC accused the firm and Kwon of fraud, for falsely claiming Chai, a popular Korean payment application, was using Terraform blockchain to make transactions. The SEC was also found liable for deceiving investors about the stability of TerraUSD, which he designed to maintain a constant $1 price. Kwon owns 92% of Terraform.
The TerraUSD and a closely linked Luna token, also designed by Kwon, collapsed in May 2022 when TerraUSD failed to secure the dollar.
A proposed final judgment covering the firm and its founder Do Kwon was filed on Wednesday in Manhattan federal court. He was arrested in Montenegro in 2023 and convicted there for trying to travel using a fake passport.
Kwon is still in custody in Montenegro. He awaits a decision on his extradition to either the U.S. or his native South Korea to face criminal charges related to Terra’s collapse. He was absent from the trial proceedings.
Terraform Labs Settlement: SEC Seeks Approval
The Securities and Exchange Commission reportedly asked a federal judge Wednesday (June 12) to approve a settlement with the firm.
The lawyers for the SEC submitted a letter to the court. They urge the New York judge to oversee the case, U.S. District Court Judge Jed Rakoff of the Southern District of New York (SDNY), to approve the settlement agreement.
According to a court filing by the SEC “Entry of this judgment would ensure the maximal return of funds to harmed investors and put the firm out of business for good. Thus, this proposed judgment is fair, reasonable, and in the public interest.”
If the court accepted the agreement, it would ban Kwon and the firm from buying or selling all crypto asset securities.
Terraform Labs and Kwon: Penalties to Pay
Under the proposed settlement, Terraform Labs and Kwon must pay the SEC in disgorgement, prejudgment interest, and civil penalties.
The firm will pay about $3.59 billion plus interest and a $420 million penalty. Kwon will pay $204.3 million, including $110 million in disgorgement, interest, and an $80 million penalty, a court filing showed. Kwon also must transfer at least $204.3 million to the Terraform bankruptcy estate for distribution to investors.
Before the deal was reached, the SEC had requested US District Judge Jed Rakoff to impose a fine of $5.3 billion, while Terraform argued it shouldn’t have to pay because most of its stable coins were sold internationally.
In the trial, Terraform Labs’ current CEO, Chris Amani, stated that the company possessed about $150 million in remaining assets.
Terraform Labs and Kwon: Banned from Trading
The settlement agreement also prohibited Kwon and Terraform Labs from engaging in buying and selling activities of crypto asset securities. It comprises all of the tokens in the Terra ecosystem.
In addition, Kwon would be barred from serving as an officer or director of a public company. They should also seek approval of a Chapter 11 liquidation plan in its bankruptcy case that replaces company directors. Terraform would wind down its business “as soon as possible,”. They should appoint a trustee or estate representative to use its remaining assets to pay creditors and investors.
Crypto markets are renowned for giving substantial rewards on investments. Unfortunately, this attracts a lot of fraudsters who want to get rich quickly fooling the masses. Terraform Labs is one such example.
Crypto markets are renowned for giving substantial rewards on investments. Unfortunately, this attracts a lot of fraudsters who want to get rich quickly fooling the masses. Terraform Labs is one such example.
Also Read: Centra Tech: Another Case of Crypto Fraud!
