Key takeaways:
- Terraform Labs will pay $4.5 billion to settle the SEC’s securities fraud lawsuit.
- The settlement prohibits Terraform Labs and former CEO Do Kwon from trading crypto assets.
- Do Kwon is still awaiting extradition in Montenegro.
In a landmark decision, Terraform Labs, the company behind the failed UST stablecoin, has agreed to a monumental $4.47 billion settlement with the U.S. Securities and Exchange Commission (SEC).
This settlement, if approved by a New York federal judge, marks one of the largest settlements ever between a cryptocurrency entity and a U.S. regulator.
The agreement follows a two-week trial in March where a jury found Terraform Labs and its founder, Do Kwon, liable for the company’s catastrophic collapse in 2022.
The collapse of UST, a stablecoin designed to maintain a 1:1 peg with the U.S. dollar, led to substantial financial losses for investors and shook the broader cryptocurrency market.
The settlement requires Terraform Labs to pay $3.59 billion plus interest, alongside a $420 million penalty. Do Kwon, personally, must pay $204.3 million, including $110 million in disgorgement and an $80 million penalty.
Furthermore, Kwon must transfer various assets, including PYTH tokens and other holdings, to the Terraform bankruptcy estate, which will be distributed to investors through a liquidating trust.
The SEC initially sought $5.3 billion in fines from Terraform Labs and Kwon. However, the proposed $4.47 billion settlement has sparked debate within the crypto community. Paul Grewal, among others, criticized the SEC’s approach, suggesting that treating the SEC as an unsecured creditor in Terraform’s bankruptcy case does little to compensate the victims adequately.
Following the settlement announcement, the price of LUNA, Terra’s native token, saw a slight increase of 2.3% to $0.56. However, the token has lost nearly 50% of its value since the April jury decision, highlighting the ongoing volatility and uncertainty surrounding the Terra ecosystem.
The settlement agreement, reached on June 6, is pending approval from a New York judge. If approved, the SEC will enforce the judgment, ensuring that Terraform Labs and Kwon comply with the financial penalties. The SEC is also authorized to use all legal collection procedures, including civil contempt, should Kwon fail to transfer the required assets within 30 days.
