Terraform Labs to Settle SEC Dispute with $4.47 Billion Payment

Terraform Labs has reached an agreement with the U.S. Securities and Exchange Commission (SEC) to pay $4.47 billion, resolving a significant dispute. This comes from the $40 billion market loss in 2022 caused by the Terra ecosystem collapse.

Terraform Labs to Pay Nearly $4.5 Billion in SEC Settlement

The Securities and Exchange Commission has requested court approval for a final consent judgment in its case against Terraform Labs and former CEO Do Kwon.

The Wednesday filing reveals an agreement between the US securities regulator and Terraform Labs, stipulating a nearly $4.5 billion payment by the former stablecoin issuer. This amount includes approximately $3.5 billion in disgorgement, over $460 million in prejudgment interest, and $420 million as a civil penalty.

Additionally, Kwon will contribute $200 million to the Terraform bankruptcy estate. The company declared bankruptcy earlier this year ahead of its trial against the SEC.

The regulator stated that the penalties it imposed, including the $420 million and Kwon’s $80 million, are fully justified and within legal limits.

It pointed out that the penalties serve as a strong warning to others who might consider engaging in similar deceptive activities, stressing that regardless of any short-term profits from such schemes, perpetrators will ultimately be held accountable. The SEC highlighted that the severity of these penalties is appropriate, especially considering the trial evidence of substantial losses suffered by investors due to the defendants’ fraudulent actions.

The 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, and provides for meaningful and speedy recovery for investor victims that collectively lost billions when Defendants’ scheme collapsed.”

Earlier this year, after a brief trial, Terraform and Kwon were found guilty of deliberately and carelessly executing one of the most significant securities frauds in U.S. history.

SEC Vs Terra: Throwback

In April, a jury in New York ruled that Kwon and his company, Terraform Labs, committed civil fraud as charged by the SEC, related to the $40 billion crash of the Terra ecosystem in May 2022. Kwon, who is currently detained in Montenegro while awaiting a decision on whether he will be extradited to the U.S. or South Korea to face criminal charges for his role in the collapse, did not attend the trial.

According to court records, both Kwon and Terraform Labs’ current CEO, Chris Amani, agreed to the settlement terms on June 6. However, the settlement still needs approval from the New York judge handling the case before it becomes official.

In 2023, the SEC sued Terraform Labs and its founder, Do Kwon, claiming they sold unregistered securities and deceived investors following the collapse of the Terra ecosystem.

In 2022, the TerraUSD algorithmic stablecoin started to become unstable, leading to a rush of investors pulling out from the Terra ecosystem, similar to a bank run.