Terraform Labs settles to pay SEC $4.5 billion in fraud case

Terraform Labs, the crypto firm responsible for the implosion of TerraLuna and TerraUSD has reached a $4.47 billion settlement with US Securities and Exchange Commission (SEC). The fine is about its algorithmic stablecoin which crashed drastically in 2022.

Also read: Terraform Labs challenges SEC over unjust $5.3 billion penalty

According to the settlement, Terraform Labs and its former CEO Do Kwon would be prohibited from trading in crypto assets including all tokens in the Terra ecosystems. SEC also banned Kwon from working as an officer or director of a public company.

Sec sets an example with Terraform Labs

The $4.47 billion includes about $3.75 billion in disgorgement, over $460 million in prejudgment interest and $420 million as civil penalty.

According to the proposed agreement, Kwon will pay $200 million to the Terraform bankruptcy estate for distribution to affected investors. The company filed for bankruptcy earlier this year.

In their Wednesday filing, SEC said:

“The proposed consent judgment both addresses the magnitude of this fraud by imposing significant remedial, punitive, and deterrent remedies, including a multi-billion-dollar judgment against defendants.”

According to SEC, between April 2018 and May 2022, the Singapore-based Terraform and Kwon raised billions by trading interlinked digital securities, many of them not properly registered with regulators. Among the digital assets was TerraUSD, which Kwon invented himself.

Terraform Labs Update: Confirmation of @SECGov $4.5b penalty.

"A jury found Kwon and Terraform liable for intentionally and recklessly orchestrating one of the largest securities frauds in US history" 👀#Terraform #SEC pic.twitter.com/aGYMAtVxPY

— MartyParty (@martypartymusic) June 12, 2024

Hefty penalty to help victims recover speedily

Terraform and Kwon were earlier this year found liable for “intentionally and recklessly orchestrating one of the largest securities frauds in US history.”

SEC said the penalties are within the statutory limits, and that they “will send a clear deterrent message to those who might be contemplating similar fraudulent schemes.”

The penalties will also help provide a meaningful and speedy recovery for investors who lost funds in the $40 billion collapse of the TerraUSD digital tokens in 2022.

Also read: OKX refunds users whose assets were stolen on its platform

Lawyers for SEC also filed a letter to the court urging the New York judge overseeing the case Judge Jed Rakoff of the Southern District of New York (SDNY) to approve the settlement agreement.

“If approved the proposed judgment will send an unmistaken deterrent message to not only those who engage in brazen misconduct, but also to all those who seek to evade the requirements of the federal securities laws,” said SEC.

The collapse of TerraUSD in 2022 and associated token luna shocked the crypto world.

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Cryptopolitan reporting by Enacy Mapakame