Do Kwon have agreed to pay over $4.5 billion

The economic substance of a product is what determines whether it falls under the regulations of securities law.

Jinse Finance has reported that the United States Securities and Exchange Commission (SEC) recently announced a significant development in a high-profile case. Terraform Labs PTE, Ltd. and its co-founder Do Kwon have agreed to pay over $4.5 billion in restitution following a prolonged fraud scheme involving crypto asset securities. This fraudulent activity spanned several years and resulted in substantial financial losses for investors when the scheme ultimately collapsed.

This case underscores a critical and oft-repeated principle in securities regulation: it is the economic reality of a product, not the labels, marketing tactics, or promotional hype, that determines whether it qualifies as a security under securities laws. SEC Chairman Gary Gensler highlighted this point, emphasizing that the fraudulent actions perpetrated by Terraform and Do Kwon had catastrophic financial repercussions for investors, many of whom saw their life savings evaporate.

Gensler remarked that the conduct of Terraform and Kwon serves as a potent reminder of the severe consequences that can arise when companies engage in illegal activities. Investors are often the ones who bear the brunt of such misconduct. In this particular case, Terraform and Kwon not only committed extensive fraud but also sought to obstruct the SEC’s investigative efforts. Their resistance included extending a legal dispute over investigative subpoenas all the way to the Supreme Court.

Fortunately, with this recent settlement, the victims of Terraform and Do Kwon’s large-scale fraud will finally see some semblance of justice. The $4.5 billion compensation will provide a degree of financial relief to those who suffered significant losses. This outcome reaffirms the SEC’s commitment to protecting investors and maintaining the integrity of the financial markets by holding fraudulent actors accountable, regardless of the complexity or scale of their schemes. The case of Terraform and Do Kwon is a stark illustration of how crucial it is to focus on the economic substance of a product to determine its regulatory classification and to ensure that those who manipulate and deceive investors face the full consequences of their actions.