US Court Orders Terraform Labs to Pay $4.5 Billion Fine to the SEC

US Court Orders Terraform Labs to Pay $4.5 Billion Fine to the SEC

A U.S. District Court judge has approved a settlement between the U.S. Securities and Exchange Commission (SEC) and Terraform Labs, along with its founder, Do Kwon. The settlement mandates a payment of $4.5 billion.

According to Cointelegraph, Judge Jed Rakoff sanctioned the agreement on June 13, 2024. Under the terms of the settlement, Terraform Labs is required to pay nearly $3.6 billion in disgorgement, $420 million in civil penalties, and approximately $467 million in interest.
Additionally, Do Kwon has agreed to pay $110 million in disgorgement, $14.3 million in prejudgment interest, and $80 million in civil penalties.

The Second Settlement Offer

Terraform Labs faced collapse in May 2022 after its stablecoin, Terra, depegged, causing the value of LUNA to plummet from its peak of $119.18 to almost nothing. This collapse also contributed to the bankruptcy of the crypto hedge fund, Three Arrows Capital.

In February 2023, the SEC filed a lawsuit against Terraform and Kwon, accusing them of securities violations and fraud. The SEC initially proposed a settlement of $5.3 billion, but Terraform Labs’ lawyers rejected this, countering with a proposed fine of no more than $1 million.

On June 6, 2024, Kwon and Terraform Labs' attorneys finally agreed to a second settlement offer from the SEC, totaling $4.5 billion.

Payment Challenges and Legal Troubles

It remains unclear how Terraform Labs will manage to pay such a substantial fine. According to CoinDesk, CEO Chris Amani revealed that the company currently holds only about $150 million in assets.

Meanwhile, Do Kwon was arrested in Montenegro while attempting to flee using a fake passport. He is currently detained there after serving a four-month prison sentence. Montenegrin authorities are now considering extradition requests from both the United States and South Korea, where Kwon faces criminal charges in both countries.

Conclusion

The settlement between Terraform Labs and the SEC marks a significant development in the ongoing saga of the company’s downfall and legal battles. The court's decision to impose a $4.5 billion fine underscores the severe consequences of the company's actions leading up to and following the collapse of its Terra stablecoin. This outcome not only reflects the regulatory authorities' determination to hold entities accountable for securities violations and fraud but also highlights the broader impact of Terraform's instability on the cryptocurrency market, as seen in the collapse of Three Arrows Capital. However, the practical challenges of enforcing such a hefty fine remain unresolved, with Terraform Labs possessing far fewer assets than required to meet the settlement's demands.

Moreover, Do Kwon's personal legal troubles add another layer of complexity to this case. His arrest and detention in Montenegro, along with the pending extradition requests from the U.S. and South Korea, illustrate the global dimensions of the legal and regulatory scrutiny facing key figures in the cryptocurrency industry. As the authorities proceed with their investigations and enforcement actions, the resolution of Kwon's fate and the means by which Terraform Labs will fulfill its financial obligations will be closely watched. This case serves as a potent reminder of the risks and responsibilities in the evolving landscape of digital finance.

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