Terraform Labs and its former CEO Do Kwon have agreed to a $4.5 billion settlement with the SEC following a jury’s verdict that found them responsible for a long-running fraud involving crypto asset securities. This unlawful activity ultimately led to significant investor losses when the underlying scheme collapsed.
A US District Court judge approved the settlement two months after the jury determined that Terraform and Kwon were civilly liable for fraud in connection with the company’s $40 billion collapse and its associated ecosystem.
The collapse was triggered in May 2022 when the TerraUSD stablecoin lost its peg to the US dollar, causing a dramatic drop in value for Terra and other tokens, which resulted in, as the SEC describes, “devastating losses to countless investors.”
The fallout from Terra’s failure also initiated a cascade of problems throughout the crypto industry, including the downfall of crypto hedge fund Three Arrows Capital, which impacted Genesis Global Capital and FTX.
SEC Chair Gary Gensler commented, “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.”
The judgment includes $4.05 billion in disgorgement plus interest, along with a $420 million civil fine for Terraform. Kwon is responsible for an $80 million civil penalty and $124 million in disgorgement and interest.
However, due to Terraform’s bankruptcy filing in January, much of the settlement amount is expected to remain unpaid. It will be classified as an unsecured claim in the ongoing Chapter 11 liquidation proceedings, as reported by Reuters.