Key takeaways:
- Court documents reveal an agreement in principle to resolve a fraud action between Terraform Labs and its former CEO, Do Kwon, with the US SEC.
- The SEC accused Terraform and Kwon of misleading investors about crypto assets’ stability and financial potential while supplying them without the necessary registration.
Court documents reveal an agreement in principle to resolve a fraud action between Terraform Labs and its former CEO, Do Kwon, with the US Securities and Exchange Commission (SEC).
Over the phone on May 29, Judge Jed Rakoff heard from the solicitors for both parties, who revealed a settlement in principle. By June 12, 2024, it is anticipated that the settlement terms will be completed and presented for the judge’s approval.
In their February legal dispute with the SEC, Terraform and Kwon were found responsible for misleading investors. May 29 was set aside for the parties to discuss the case’s remedy.
The fraudulent marketing and sales of crypto tokens, including the algorithmic stablecoin TerraUSD (UST) and tokens connected to Terra, were the main points of contention in the SEC’s lawsuit against Terraform and Kwon.
The SEC accused Terraform and Kwon of misleading investors about crypto assets’ stability and financial potential while supplying them without the necessary registration.
The most recent crypto winter began in May 2022 with Terraform Labs’ failure, which caused a severe decline in all markets and impacted numerous crypto companies and investors.
Given that the SEC requested almost $5.3 billion in disgorgement, prejudgment interest, and civil penalties, Kwon and Terraform could be subject to hefty financial penalties.
In the meantime, Terraform Labs argued against disgorgement and offered a far smaller fine of $1 million, citing the Luna Foundation Guard as an example of a connected organization that was not specifically mentioned in the SEC’s lawsuit.
The SEC then suggested that Kwon’s positions as an officer or director in any company that issues securities should be prohibited. The regulatory body additionally mandated that Kwon provide complete disclosures on his assets and bank accounts.
Kwon argued in a separate lawsuit that revealing information about his assets and accounts would go against his Fifth Amendment protections against being forced to testify against himself.
Kwon faces possible charges in Montenegro after being arrested in March 2023 for allegedly forging travel credentials while attempting to flee the country. Later, he was granted bail, and the US requested his extradition.
