- Terraform Labs and its co-founder Do Kwon have reached a “settlement in principle” with the U.S. Securities and Exchange Commission (SEC) regarding a fraud case.
- The SEC had sought to impose a $5.3 billion penalty, its largest fine yet on a cryptocurrency project.
- Do Kwon is currently out on bail in Montenegro, awaiting extradition to either the U.S. or South Korea, facing criminal charges in both countries.
Terraform Labs and co-founder Do Kwon have reached a settlement with the SEC regarding a fraud case, marking a significant development in the ongoing legal battles surrounding the collapse of TerraUSD and LUNA.
Settlement Details and Financial Implications
The settlement was disclosed during a court session on May 29, conducted via telephone without transcription or recording. The parties are required to submit the necessary settlement documents to Judge Jed S. Rakoff by June 12. The SEC had initially requested that Kwon and Terraform pay $4.7 billion in disgorgement and interest for their involvement in the Terra-Luna collapse of 2022. Additionally, the SEC is seeking civil penalties of $420 million for Terraform and $100 million for Kwon.
Legal Proceedings and Financial Controversies
The civil court jury in New York found Kwon and Terraform Labs liable for misleading customers regarding the safety of investing in their algorithmic stablecoin Terra USD (UST) and the utility of its underlying blockchain. Investors reportedly purchased over $2 billion worth of UST from exchanges and other trading venues. The SEC defended its proposed fines as “conservative” yet “reasonable,” citing the massive profits Kwon obtained from Terraform’s stablecoin despite its eventual failure. However, Terraform Labs is contesting the amount of the civil penalties, arguing for a maximum fine of $3.5 million, while Kwon has offered to pay $800,000.
Financial Management and Legal Expenses
Terraform Labs has been granted approval by court in March to cover legal expenses with its remaining funds. Concerns were raised last month over Terraform’s allocation of up to $166 million in retainer payments to its legal team since 2023, a move criticized for diverting essential funds away from creditors. This big outlay represented a risk to the assets available for creditor repayment amidst the ongoing bankruptcy case. Meanwhile, Dentons agreed to return $48 million to Terraform and accepted additional oversight from the bankruptcy court moving forward.
Conclusion
The settlement between Terraform Labs, Do Kwon, and the SEC marks a pivotal moment in the ongoing legal saga surrounding the collapse of TerraUSD and LUNA. While the financial penalties and legal proceedings continue to unfold, this development provides a clearer path forward for all parties involved. Investors and stakeholders will be closely monitoring the submission of the settlement documents and the subsequent legal and financial ramifications.
