Terraform Labs and Do Kwon Settle with SEC for $4.5 Billion
Terraform Labs and its former CEO, Do Kwon, have agreed to a settlement with the U.S. Securities and Exchange Commission (SEC) that involves a significant financial penalty and a permanent ban from trading crypto asset securities. Here’s a breakdown of the key points:
Contents
Settlement Details
- Total Penalty: Terraform Labs and Do Kwon will pay a combined $4.5 billion in disgorgement, prejudgment interest, and civil penalties.
- Personal Liability: Do Kwon is personally liable for at least $204 million of the total penalty.
- Permanent Ban: The settlement includes a permanent ban on Kwon and Terraform Labs from buying and selling crypto asset securities, affecting all tokens within the Terra ecosystem.
Judicial Approval Required
- The settlement agreement, filed on June 6, 2024, is pending approval from U.S. District Court Judge Jed Rakoff of the Southern District of New York (SDNY).
- SEC lawyers have urged the court to approve the settlement to set a strong deterrent against similar misconduct in the crypto industry.
Context of the Settlement
- Previous Penalty: The penalty is lower than the SEC’s initial settlement offer of $5.3 billion but significantly higher than Terraform Labs’ counteroffer of a $1 million civil penalty without disgorgement or injunctions.
- Bankruptcy Status: Terraform Labs is currently under Chapter 11 bankruptcy protection, with approximately $150 million in remaining assets.
- Legal Background: In April 2024, a New York jury found Kwon and Terraform Labs liable for civil fraud charges related to the $40 billion collapse of the Terra ecosystem in May 2022.
Implications
- Deterrent Effect: The SEC aims to use this settlement as a warning to other entities in the crypto space about the serious consequences of evading federal securities laws.
- Future of Terraform Labs: The future operations of Terraform Labs remain uncertain, especially given its ongoing bankruptcy proceedings and significant financial penalties.
- Do Kwon’s Legal Status: Kwon remains in custody in Montenegro, awaiting extradition decisions to either the U.S. or South Korea to face additional criminal charges.
The settlement represents a landmark decision in the ongoing regulation and enforcement within the cryptocurrency sector, emphasizing the SEC’s commitment to holding entities accountable for securities law violations.
