Terraform Labs, Do Kwon Settle SEC Charges for $4.5 Billion

Terraform Labs and its co-founder Do Kwon have reached a settlement agreement with the U.S. Securities and Exchange Commission (SEC) for a staggering $4.5 billion.

This settlement comes after the SEC filed a civil lawsuit against Terraform Labs and Kwon in May 2022, alleging they had defrauded investors with their TerraUSD (UST) stablecoin and Luna token. The agency was seeking $4.7 billion for Terraform Labs and Do Kwon's disgorgement and prejudgment interest, as well as additional civil penalties of $420 million and $100 million for the firm and its co-founder respectively.

Collapse of UST and Luna

The Terra ecosystem, spearheaded by Terraform Labs, experienced a spectacular collapse in May 2022. UST, an algorithmic stablecoin designed to maintain a 1:1 peg with the US dollar, lost its peg and plummeted in value. This triggered a domino effect, causing the price of Luna, the ecosystem's utility token, to spiral downwards towards near worthlessness. The crash resulted in billions of dollars in losses for investors and the start of a long crypto winter for the rest of the industry.

SEC Accusations and Settlement Terms

The SEC alleged that Terraform Labs and Do Kwon misled investors about the stability of UST and engaged in misleading marketing practices. The settlement, if approved by a judge, requires Terraform Labs to pay $4.05 billion in disgorgement, prejudgment interest, and a civil penalty of $420 million.

Do Kwon will also pay a separate civil penalty of $80 million. Additionally, the settlement imposes a permanent ban on Kwon and Terraform Labs from participating in the offering or sale of crypto asset securities.

Terraform Labs filed for bankruptcy in January 2024, casting doubt on their ability to pay the full settlement amount. Do Kwon is also facing separate criminal charges related to the Terra collapse, and his extradition from Montenegro is currently pending.