U.S. Judge Signs Off on $4.5B Terraform-Do Kwon Settlement With SEC

A
U.S.
District
Court
judge
has
agreed
to
a
settlement
between
the
Securities
and
Exchange
Commission
(SEC),
Terraform
Labs
and
its
former
CEO,
Do
Kwon,
which
would
have
them
pay
billions
in
penalties
as
well
as
virtually
ban
them
from
the
crypto
industry,
according
to
the
court
filings.

The
settlement
approved
by
District
Court
Judge
Jed
Rakoff
of
the
Southern
District
of
New
York
(SDNY)
involves
Terraform
Labs
and
Kwon
paying
a
combined
$4.5
billion
in
disgorgement
and
civil
penalties
while
being
permanently
banned
from
buying
and
selling
all
“crypto
asset
securities,”
including
Terra
ecosystem
tokens.

The
settlement
comes
just
two
months
after
a
New
York
jury
found
Terraform
Labs
and
Kwon
civilly
liable
for
fraud
stemming
from
the
$40
billion
collapse
of
the
Terra
ecosystem
in
May
2022.
Terra’s
implosion
led
to
the
collapse
of
crypto
hedge
fund
Three
Arrows
Capital
which,
in
turn,
took
out
other
crypto
companies
including
Genesis
Global
Capital
and,
indirectly,
FTX.

“This
case
affirms
what
court
after
court
has
said:
The
economic
realities
of
a
product
—
not
the
labels,
the
spin,
or
the
hype
—
determine
whether
it
is
a
security
under
the
securities
laws,”
said
SEC
Chair
Gary
Gensler
in
a
Thursday
press
release.
“Terraform
and
Do
Kwon’s
fraudulent
activities
caused
devastating
losses
for
investors,
in
some
cases
wiping
out
entire
life
savings.
Their
fraud
serves
as
a
reminder
that,
when
firms
fail
to
comply
with
the
law,
investors
get
hurt.
Terraform
and
Kwon
fought
our
efforts
to
investigate
–
taking
a
fight
over
investigative
subpoenas
all
the
way
to
the
Supreme
Court.
Thankfully,
with
this
settlement,
the
victims
of
their
massive
fraud
will
now
get
some
justice.”

The
SEC
first
suggested
a
$5.3
billion
settlement
in
the
case,
which
lawyers
for
Terraform
Labs
countered
by
telling
the
judge
that
the
company
should
be
fined
no
more
than
$1
million
in
civil
penalties.
On
June
6,
lawyers
for
both
Kwon
and
Terraform
Labs
agreed
to
the
SEC’s
second
settlement
offer
of
$4.5
billion.

Kwon,
still
in
custody
in
Montenegro

awaiting
a
decision
on
his
extradition,
did
not
appear
at
the
trial
where
the
settlement
was
reached.

Terraform
Labs
is
currently
in
Chapter
11
bankruptcy
protection
and,
according
to
current
CEO
Chris
Amani’s
trial
testimony,
has
approximately
$150
million
in
assets
on
hand.
It
is
currently
unclear
how
the
company
will
pay
the
hefty
fines.

The
settlement
is
binding
and
cannot
be
appealed.

Update
(June
13,
2024,
22:15
UTC):

Adds
SEC
statement.