- The SEC is seeking a record-breaking $5.3 billion fine against Terraform Labs and its co-founder, Do Kwon
- The sum is based on alleged accruals by Kwon and others in Terraform Labs but is unlikely to be fully recovered
- Terraform Labs and Kwon have both argued against the sum
The Securities and Exchange Commission (SEC) wants to send an “unequivocal message” to crypto platform operators by seeking a record-breaking $5.3 billion fine against Terraform Labs and its co-founder, Do Kwon. The staggering sum, which would break the SEC’s record, is based on the sum allegedly accrued by Kwon and others inside the Terraform Labs orbit, although it’s highly doubtful that it would recover anything like that amount. Terraform Labs fell into bankruptcy in January, while Kwon’s team argues that he hasn’t got the funds to pay his share.
Kwon and Terraform Lied Aout Platform Stability
The SEC’s request came in a court filing last week where it claimed that Kwon and Terraform Labs amassed “over $4 billion in ill-gotten gains (and likely much more)” from their illicit activities. According to court documents, sales of LUNA and MIR to institutional investors, as well as transactions involving LUNA and UST through the Luna Foundation Guard (LFG), contributed to this substantial sum.
The civil fraud charges against Terraform Labs and Kwon were established earlier this month by a Manhattan jury, which ruled that the pair had deceived investors regarding the stability of their “algorithmic” native stablecoin, Terra USD (UST), and the potential applications of the Terra blockchain.
In a motion for final judgment submitted two weeks after the verdict, the SEC seeks $4.74 billion in disgorgement and prejudgment interest, alongside a collective $520 million in civil penalties. This figure comprises $420 million from Terraform Labs and $100 million directly from Kwon.
Moreover, the SEC aims to implement injunctions preventing Kwon and Terraform Labs from perpetrating further securities violations, as well as restraining them from trading any crypto asset security. Additionally, the SEC intends to impose an officer-and-director ban on Kwon, precluding him from assuming such roles at SEC-reporting public companies in the future.
No Remorse = Higher Bill
Highlighting the necessity of these measures, the SEC emphasized the absence of remorse from the defendants and the likelihood of recurring violations, with the testimony of Terraform Labs’ current CEO, Chris Amani, raised during the trial of particular concern for the SEC: Amani’s acknowledgment of ongoing product development juxtaposed with continued token sales was characterized by the SEC as “likely recidivism.”
In response to the SEC’s motion, Terraform argued against injunctive relief or disgorgement, advocating solely for “appropriate civil penalty” for proven violations in the US Meanwhile, Kwon’s legal team contended that injunctive relief against him is unwarranted, citing his current unemployment status and lack of illegal profits to disgorge.
Kwon remains in Montenegro, with the US and South Korea still locked in a battle for his extradition to stand trial for his alleged role in Terra/LUNA collapse.
