Terraform Labs has agreed to pay the United States Securities and Exchange Commission (SEC) roughly $4.47 billion as part of its settlement with the securities regulator. The total remedies include disgorgement fines of roughly $3.6 billion, a civil penalty of $420 million and prejudgement interest of nearly $467 million.
The settlement was reached after a jury found Terraform Labs and its co-founder liable for the Terra ecosystem collapse, which erased $40 billion in investor assets.
In accordance with the settlement plan, former Terraform Labs CEO Do Kwon is liable for $110 million in disgorgement penalties, $80 million in civil penalties, and roughly $14.3 million in pre-judgment interest fines. The settlement filing laid out the next immediate and short-term steps:
“Payment of the monetary remedies against Kwon shall be deemed satisfied, provided that all transfers by Kwon to the SEC and the Terraform bankruptcy estate in the Bankruptcy Case total no less than $204,320,196, excluding the value of any Terraform Crypto Assets transferred to the Terraform bankruptcy estate, only if and until Kwon completes: (1) transferring into an escrow account agreed by Kwon and the Commission staff $4,700,000 within 30 days of Final Judgment.”
The filing also stipulated the transfer of all crypto assets belonging to the Luna Foundation Guard and all Pyth Network (PYTH) token holdings from Kwon to cover the cost of the disgorgement fines and prejudgement interest, with any remaining amount from the sale of these assets to be applied to the civil penalty fines.
SEC v Terraform Labs—a quick history
The SEC filed a lawsuit against Terraform Labs in 2023, accusing the firm and its founder, Do Kwon, of selling unregistered securities and defrauding investors after the collapse of the Terra ecosystem.
Related: Do Kwon’s extradition to go back to Montenegro High Court after appeal.
In 2022, the TerraUSD algorithmic stablecoin began to show signs of instability, followed by investor flight from the Terra ecosystem, which essentially amounted to a bank run.
Not long after widespread fears about the Terra ecosystem gripped the market, TerraUSD lost its dollar peg and collapsed—leading to billions in losses for holders of the assets.
Founder Do Kwon still in limbo
The fate of Do Kwon remains uncertain as courts in Montenegro wrestle with what to do with the South Korean native.
Courts in Montenegro have reversed course on the decision to extradite Kwon several times. Attorneys for the Terraform founder argued improper procedures and filings in the lower courts have tainted the court proceedings in the many appeals they filed.
At the time of writing, the high court in Montenegro is still attempting to determine whether to extradite the Terraform founder back to his native country or the United States to face charges.
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