Terraform Labs, along with its former CEO Do Kwon, has reached a settlement agreement with the U.S. Securities and Exchange Commission (SEC) to pay a total of $4.5 billion in disgorgement, prejudgment interest, and civil penalties. This agreement is still pending approval from the New York judge overseeing the case.
In addition to the financial penalties, the settlement would also result in a permanent ban on Kwon and Terraform Labs from buying and selling crypto asset securities, including all tokens in the Terra ecosystem. The SEC’s lawyers have urged the judge to approve the settlement, emphasizing the message it would send to those who engage in misconduct or attempt to evade federal securities laws in the crypto asset space.
Following a trial in April where Kwon and Terraform Labs were found liable for civil fraud charges related to the collapse of the $40 billion Terra ecosystem, both parties agreed to the terms of the settlement on June 6. Kwon, who is currently in custody in Montenegro awaiting extradition to either the U.S. or South Korea for criminal charges, must contribute at least $204,320,196 towards the total payment to the SEC.
Despite Terraform Labs being in Chapter 11 bankruptcy protection, the company still has around $150 million in remaining assets. The settlement amount is lower than the SEC’s initial offer of $5.3 billion but significantly higher than the minimal penalty Terraform Labs had suggested in their opposition to the SEC’s motion for final judgment.
The SEC has not provided further comments on the matter, and a representative for Terraform Labs declined to comment on the implications of the settlement for the company’s future. The final decision on the settlement agreement lies with the New York judge overseeing the case.
The outcome of this case highlights the regulatory scrutiny and consequences that companies and individuals in the crypto industry may face for non-compliance with securities laws. It serves as a warning to those who engage in fraudulent activities or attempt to navigate around existing regulations in the crypto space.
As the crypto industry continues to evolve, regulatory authorities are stepping up enforcement actions to maintain investor protection and market integrity. Compliance with securities laws and regulations is crucial for the long-term sustainability and legitimacy of the crypto market, and cases like this one underscore the importance of accountability and transparency in the industry.