US judge approves Terraform’s $4.5B settlement with SEC

A U.S. district court judge approved a $4.5 billion civil case the SEC brought against crypto firm Terraform Labs and founder Do Kwon.
A U.S. district court judge approved a $4.5 billion civil case the SEC brought against crypto firm Terraform Labs and founder Do Kwon.

A United States district court judge has signed off on the $4.5 billion settlement between Terraform Labs, its co-founder Do Kwon and the Securities and Exchange Commission.

New York District Court Judge Jed Rakoff approved the deal on June 13. The deal will see Terra and Kwon pay billions in fines and penalties to the regulator while essentially banning them from the crypto industry.

Under the deal, Terraform will pay nearly $3.6 billion in disgorgement, a $420 million civil penalty and around $467 million in prejudgement interest.

On a joint basis with Terraform, Kwon agreed to pay $110 million in disgorgement and $14.3 million in prejudgment interest — along with an $80 million civil penalty.

Excerpt from Judge Rakoff’s order on Kwon’s penalties and fines. Source: PACER

Terraform’s crypto ecosystem collapsed in May 2022 after its algorithmic stablecoin TerraUSD (UST) — now TerraClassicUSD (USTC) — lost its peg to the U.S. dollar.

The depeg triggered a death spiral for the network’s Terra Classic (LUNC) token, meant to help balance the price of the stablecoin.

The SEC sued Terraform and Kwon in February 2023, charging them with securities law violations and fraud.

“This case affirms what court after court has said: The economic realities of a product — not the labels, the spin, or the hype — determine whether it is a security under the securities laws,” SEC Chair Gary Gensler said in a June 13 statement.

“Terraform and Do Kwon’s fraudulent activities caused devastating losses for investors, in some cases wiping out entire life savings,” he added. “Their fraud serves as a reminder that, when firms fail to comply with the law, investors get hurt.”

Related: Terraform Labs to end operations, Terra community will take over

The 2022 stablecoin depeg wiped $45 billion worth of value wfrom the Terra blockchain within days. The event sparked a wider panic in the crypto market that led to many tokens significantly dropping in value.

Terraform Labs filed for bankruptcy in January, and it’s unclear how it will get the money to pay the huge settlement as it disclosed assets worth $430.1 million against liabilities worth $450.9 million.

Meanwhile, Kwon is currently in custody in Montenegro after serving four months in jail for using fake passports to try to leave the country in March last year.

He’s been released until the country’s courts decide on competing extradition requests from the U.S. and his native South Korea, where he faces criminal charges from both.

Kwon’s legal team successfully appealed his extradition last month, with Montenegro’s High Court set to decide where to extradite him.

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Update (June 13, 11:45 PM UTC): This article has been updated to add information throughout.