Terraform Labs Pte. has agreed to pay $4.47 billion to resolve a US Securities and Exchange Commission (SEC) lawsuit regarding the firm’s 2022 collapse. This collapse wiped out $40 billion in investor assets and significantly impacted the cryptocurrency market.
SEC Settlement and Court Approval
The SEC asked a federal judge in New York on Wednesday to approve the settlement. This agreement follows a jury’s decision in April, which found Terraform and co-founder Do Kwon liable for fraud after a two-week civil trial. Kwon still faces criminal charges related to the sale of the firm’s UST stablecoin.
Breakdown of the Settlement
Terraform will pay approximately $3.59 billion plus interest, along with a $420 million penalty. Do Kwon will personally pay $204.3 million, including $110 million in disgorgement, interest, and an $80 million penalty. Kwon must also transfer at least $204.3 million to the Terraform bankruptcy estate for distribution to investors and is barred from serving as an officer or director of a public company, according to the settlement.
Context of the Settlement
Before reaching the settlement, the SEC had requested US District Judge Jed Rakoff to impose a $5.3 billion fine on Terraform. Terraform argued against the penalty, stating that most of its stablecoins were sold overseas. The resolution requires Terraform to wind down its business operations “as soon as possible” and seek approval for a Chapter 11 liquidation plan. This plan includes replacing company directors, including current CEO Chris Amani, and appointing a trustee or estate representative to use the remaining assets to pay creditors and investors.
SEC’s Statement and Settlement Implications
The SEC emphasized that the settlement aims to ensure the maximum return of funds to harmed investors and to permanently shut down Terraform. “The entry of this judgment would ensure the maximal return of funds to harmed investors and put Terraform out of business for good,” the SEC stated in a letter to Judge Rakoff. David Kornblau, Terraform’s lawyer, declined to comment on the settlement.
Also Read: Terraform Challenges SEC’s $4.7 Billion Claim
Fraud and Misrepresentation Findings
Jurors found Terraform and Do Kwon liable for fraud, concluding that they falsely claimed Chai, a popular Korean payment application, was using Terraform’s blockchain technology for transactions. They also determined that investors were misled about the stability of the UST stablecoin, which Kwon and Terraform asserted was algorithmically pegged to the US dollar.
Do Kwon, who owns 92% of Terraform, was arrested in Montenegro in 2023 and convicted of attempting to travel with a fake passport. Since then, Kwon has been caught in a legal battle over extradition, with authorities in Montenegro, the US, and South Korea vying for his extradition.
