Do Kwon, Terraform Labs Should Get $5.3B Fine, SEC Tells Court

The
U.S.
Securities
and
Exchange
Commission
(SEC)
has
asked
a
New
York
court
to
impose
$5.3
billion
in
fines
on
Terraform
Labs
and
co-founder
Do
Kwon
for
their
role
in
the

$40
billion
implosion
of
the
Terra
ecosystem
in
2022.

Terraform
Labs
and
Kwon
were
found
liable
on
civil
fraud
charges
earlier
this
month,
when
a
Manhattan
jury
concluded
that
they
had
misled
investors
about
the
stability
of
their
so-called
“algorithmic”
native
stablecoin,
Terra
USD
(UST),
and
the
use
cases
for
the
Terra
blockchain.

In
the
SEC’s
motion
for
final
judgment,
filed
two
weeks
after
the
conclusion
of
the
trial,
the
regulator
is
requesting
that
Terraform
Labs
and
Kwon
pay
$4.74
billion
in
disgorgement
and
prejudgment
interest,
as
well
as
a
collective
$520
million
in
civil
penalties:
$420
million
from
Terraform
Labs
and
$100
million
from
Kwon’s
pocket.

In
an
accompanying
memorandum
of
law,
the
SEC
attempted
to
justify
the
total
amount
to
the
court
by
saying
that
Kwon
and
Terraform
Labs
made
“over
$4
billion
in
ill-gotten
gains
(and
likely
much
more)
from
their
illegal
conduct.”

Sales
of
LUNA
and
MIR
to
institutional
investors
totaled
$65.2
million
and
$4.3
million,
respectively,
sales
of
LUNA
and
UST
through
the
Luna
Foundation
Guard
(LFG)
totaled
$1.8
billion,
and
investors
bought
$2.3
billion
in
UST
on
various
crypto
asset
trading
platforms
between
June
2021
and
May
2022,
according
to
court
documents.

The
SEC
added
that
the
fine
amount
represented
a
“conservative”
but
“reasonable
approximation”
of
Terraform
and
Kwon’s
“ill-gotten
gains.”

In
addition
to
steep
monetary
penalties,
the
SEC
is
also
seeking
injunctions
preventing
Kwon
and
Terraform
Labs
from
committing
further
securities
violations,
buying
or
selling
“any
crypto
asset
security,”
as
well
as
an
officer-and-director
ban
on
Kwon,
which
would
bar
him
from
ever
serving
as
an
officer
or
director
at
an
SEC-reporting
public
company.

The
SEC
said
such
measures
were
necessary
to
deter
future
violations,
as
“Defendants
have
not
shown
remorse
for
their
conduct,
nor
can
there
be
any
doubt
that
they
are
in
position
where
additional
violations
are
not
only
possible
but
likely
are
already
occurring.”

The
SEC
appeared
to
take
particular
issue
with
current
Terraform
Labs’
CEO
Chris
Amani’s
testimony
during
the
nine-day
trial,
during
which
he
said
that
the
company
is
“still
working
to
build”
products
and
continuing
to
sell
tokens.

The
SEC
called
Amani’s
testimony
a
“frank
acknowledgement
of
likely
recidivism”
and
added:
“Terraform’s
new
CEO
took
the
stand
in
a
stunning
display
of
chutzpah
and
attempted
to
garner
sympathy
by
noting
that
Terraform
had
distributed
a
new
version
of
their
token
–
LUNA
2.0
–
to
their
victims,
all
the
while
continuing
to
spend
the
millions
they
had
reaped
from
investors
and
engaging
in
additional
unregistered
distributions
of
these
securities.”

In
a
motion
filed
the
same
day
as
the
SEC’s,
Terraform
said
that
the
court
should
not
grant
the
SEC
any
injunctive
relief
or
disgorgement
against
it,
only
an
“appropriate
civil
penalty”
per
violation
that
the
SEC
can
prove
occurred
in
the
U.S.

During
the
trial,
Amani
testified
that
the
company,
which
is
currently
in
bankruptcy,
had
approximately
$150
million
in
assets
remaining.

A
representative
for
Terraform
Labs
did
not
respond
to
CoinDesk’s
request
for
comment.

Kwon’s
lawyers
also
filed
a
memorandum
of
law
claiming
that
injunctive
relief
against
him
is
not
warranted,
due
to
the
fact
that
he
is
not
currently
employed
and
has
pending
criminal
charges
against
him.
They
also
added
that
Kwon
has
“no
illegal
profits
…
to
disgorge.”

Kwon
remains
in
Montenegro,
where
he
was

arrested
and
jailed
last
year
for
attempting
to
use
forged
Costa
Rican
travel
documents
en
route
to
Dubai.

The
Montenegrin
government
is
currently

weighing
competing
extradition
requests
from
both
the
U.S.
and
South
Korea,
Kwon’s
native
country,
which
both
hope
to
try
him
on
criminal
charges
tied
to
the
Terra
collapse.