A US District Court judge has approved a $4.5 billion settlement agreement between Terraform Labs, its co-founder Do Kwon, and the US Securities and Exchange Commission (SEC).
Judgment by New York Court
On June 13, New York District Court Judge Jed Rakoff approved the agreement. Under the agreement, Terra and Kwon will pay billions in fines and penalties to the regulatory body and are essentially barred from the crypto industry.
According to the agreement, Terraform will pay nearly $3.6 billion in disgorgement, $420 million in civil penalties, and approximately $467 million in prejudgment interest.
Kwon agreed to jointly pay $110 million in disgorgement and $14.3 million in prejudgment interest with Terraform, as well as $80 million in civil penalties.
TerraUSD Collapse
In May 2022, Terraform’s crypto ecosystem collapsed when its algorithmic stablecoin TerraUSD (UST) (now TerraClassicUSD (USTC)) lost its peg to the US dollar.
The de-pegging triggered a death spiral for the network’s Terra Classic (LUNC) token, which was designed to help balance the stablecoin’s price.
In February 2023, the SEC sued Terraform and Kwon, alleging violations of securities laws and fraud.
“This case reaffirms what courts have said time and again: The economic realities of a product—not the labels, marketing, or hype—determine whether it is a security under the securities laws,” SEC Chairman Gary Gensler said in a statement on June 13.
“Terraform and Do Kwon’s fraudulent actions caused devastating losses to investors, in some cases wiping out their life savings,” he added. “Their fraud reminds us that when companies fail to comply with the law, investors suffer.”
The 2022 stablecoin de-pegging wiped out $45 billion in value from the Terra blockchain within days. This event triggered a larger panic in the cryptocurrency market, leading to significant drops in the value of many tokens.
Terraform Labs’ Financial Status
Terraform Labs filed for bankruptcy in January, and it remains unclear how it will secure the funds to pay the hefty settlement, as it disclosed $430.1 million in assets and $450.9 million in liabilities.
Meanwhile, Kwon is currently detained in Montenegro after being imprisoned for four months for attempting to leave the country with a fake passport in March of last year.
Current Status of Do Kwon
He has been released pending a decision by the country’s court on competing extradition requests from the US and his home country, South Korea, where he faces criminal charges in both countries.
Kwon’s legal team successfully appealed his extradition last month, and Montenegro’s High Court will decide where to extradite him.
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