Terraform Labs, Do Kwon Agree to Pay SEC a Combined $4.5B in Civil Fraud Case

Terraform
Labs
and
its
former
CEO
Do
Kwon
have
agreed
to
a
settlement
agreement
with
the
U.S.
Securities
and
Exchange
Commission
(SEC)
that
would
see
them
forking
over
a
combined
$4.5
billion
in
disgorgement
and
civil
penalties.

The
settlement
agreement,
which
was
filed
Wednesday,
would
also
permanently
ban
Kwon
and
Terraform
Labs
from
buying
and
selling
crypto
asset
securities
–
including
all
of
the
tokens
in
the
Terra
ecosystem.

In
addition
to
their
proposed
final
judgment,
lawyers
for
the
SEC
filed
a
letter
with
the
court
urging
the
New
York
judge
overseeing
the
case,
U.S.
District
Court
Judge
Jed
Rakoff
of
the
Southern
District
of
New
York
(SDNY),
to
approve
the
settlement
agreement.

“If
approved,
the
proposed
judgment
will
send
an
unmistakable
deterrent
message
to
not
only
those
who
engage
in
brazen
misconduct,
but
also
to
all
those
who
seek
to
evade
the
requirements
of
the
federal
securities
laws
by
crafting
new
standards
of
behavior
for
crypto
assets
that
fall
under
the
purview
of
the
federal
securities
laws,”
the
lawyers
wrote.
The
SEC
declined
to
comment
further.

A
representative
for
Terraform
Labs
declined
to
comment
on
the
proposed
settlement
or
what
it
means
for
Terraform
Labs’
future.

In
April,
a
New
York
jury
found
Kwon
and
Terraform
Labs
liable
on
civil
fraud
charges
brought
against
them
by
the
SEC
in
connection
with
the
$40
billion
implosion
of
the
Terra
ecosystem
in
May
2022.
Kwon
–
who
is
still
in
custody
in
Montenegro
where
he
awaits
a
decision
on
his
extradition
to
either
the
U.S.
or
his
native
South
Korea
to
face
criminal
charges
for
his
role
in
Terra’s
collapse
–
was
not
in
attendance
for
the
trial.

According
to
court
documents,
Kwon
and
Terraform
Labs’
current
CEO,
Chris
Amani,
both
agreed
to
the
terms
of
the
settlement
on
June
6,
though
the
settlement
agreement
must
still
be
approved
by
the
New
York
judge
overseeing
the
case
before
it
is
made
binding.

Of
the
$4,473,828,306
that
Terraform
Labs
and
Kwon
must
pay
to
the
SEC
in
disgorgement,
prejudgment
interest,
and
civil
penalties,
Kwon
must
pay
at
least
$204,320,196
out
of
his
own
pocket.
The
steep
penalty
is
slightly
lower
than
the
SEC’s

first
settlement
offer
of
$5.3
billion
in
fines,
but
much
higher
than
the
virtual
slap
on
the
wrist
–
a
$1
million
civil
penalty
and
no
disgorgement
or
injunctions
–
Terraform
Labs
suggested
to
the
court
in
its
April
memorandum
of
opposition
to
the
SEC’s
motion
for
final
judgment.

During
Terraform’s
trial,
Amani
testified
that
the
company,
which
is
currently
in
Chapter
11
bankruptcy
protection,
had
approximately
$150
million
in
assets
remaining.