- Terraform Labs and Do Kwon have reached a tentative settlement with the SEC, as disclosed in a recent court filing
- The pair were found guilty of misleading investors before the 2022 collapse of TerraUSD
- The settlement terms have remained undisclosed, with US District Judge Jed Rakoff directing supporting documents to be filed by June 12
Terraform Labs and its founder Do Kwon have reached a tentative settlement with the US Securities and Exchange Commission (SEC) according to a recent court filing. The SEC claims that the pair misled cryptocurrency investors before the 2022 collapse of the stablecoin TerraUSD (UST), and in April, a jury found both defendants liable on civil fraud charges. The court disclosed the deal on its website on Thursday, though the terms remain undisclosed.
$40 Billion Lost
Terraform Labs, co-founded by Do Kwon in 2018, is the company behind the Terra blockchain, which gained significant traction with its algorithmic UST stablecoin and the native token, LUNA. The platform aimed to create a decentralized financial ecosystem, but it faced scrutiny as concerns over its stability and regulatory compliance emerged. It famously imploded in May 2022, wiping out around $40 million in holdings.
The SEC’s investigation into Terraform Labs and Do Kwon began a year before this collapse, with the agency particularly interested in the nature of UST and LUNA, scrutinizing whether they should be classified as securities. The SEC’s concerns centered on the marketing of these tokens, which they alleged misled investors about the potential risks and rewards associated with the assets.
SEC Won Court Case in April
In early 2022, the SEC formally charged Terraform Labs and Do Kwon with securities fraud, alleging that Kwon and his company engaged in deceptive practices, including providing false and misleading information to investors about the stability and returns of their tokens. The SEC argued that Terraform Labs failed to register their offerings, violating federal securities laws.
Kwon was absent from the trial which took place earlier this year having successfully appealed extradition to the US, but he was found guilty in absentia alongside his company, which has declared bankruptcy.
Details of the settlement are yet to be made public, with US District Judge Jed Rakoff directing the SEC and the defendants to file supporting documents for the settlement by June 12.
