- Terraform Labs and Do Kwon have reached a provisional $4.5 billion settlement with the SEC
- The settlement includes a permanent ban on Kwon and Terraform Labs from trading crypto asset securities
- Judge Jed Rakoff has yet to approve the settlement, which is expected to be confirmed
Terraform Labs and its former CEO, Do Kwon, have reached a provisional settlement with the US Securities and Exchange Commission (SEC), agreeing to pay a total of $4.5 billion in disgorgement and civil penalties. The settlement, filed on Wednesday, also includes a permanent ban on Kwon and Terraform Labs from trading in crypto asset securities, including all tokens within the Terra ecosystem. The judge in the case, Jed Rakoff, still has to approve the settlement, but all indications are that it will indeed be rubber-stamped.
Settlement is 10% of Terra Collapse Value
A New York jury found Kwon and Terraform Labs liable in April for civil fraud charges related to the $40 billion collapse of the Terra ecosystem in May 2022. Kwon, currently detained in Montenegro awaiting a final decision on his extradition to either the US or South Korea for criminal charges associated with Terra’s downfall, was not present at the trial.
The fact that such a huge settlement, which tops what Binance agreed to hand over to three US agencies investigating it, represents a little over 10% of the total value lost in the Terra collapse illustrates the magnitude of the event.
In a supporting letter to Judge Rakoff, the SEC emphasized that the proposed judgment would serve as a significant deterrent against misconduct in the crypto industry:
If approved, the proposed judgment will send an unmistakable deterrent message to not only those who engage in brazen misconduct, but also to all those who seek to evade the requirements of the federal securities laws by crafting new standards of behavior for crypto assets that fall under the purview of the federal securities laws.
Court documents show that Kwon and Terraform Labs’ current CEO, Chris Amani, agreed to the settlement terms on June 6, with Judge Rakoff’s approval the next and final barrier.
Kwon to Pay $204 Million
The $4.47 billion settlement includes disgorgement, prejudgment interest, and civil penalties, with Kwon personally responsible for at least $204 million. This penalty, while lower than the SEC’s initial $5.3 billion proposal, is substantially higher than the $1 million civil penalty and no disgorgement or injunctions that Terraform Labs suggested in its April opposition memorandum.
During the trial, Amani testified that Terraform Labs, now under Chapter 11 bankruptcy protection, has approximately $150 million in remaining assets.
