U.S. Judge Signs Off on $4.5B Terraform-Do Kwon Settlement With SEC

The settlement bans Kwon and Terraform Labs from buying and selling crypto asset securities while agreeing to pay $4.5 billion in disgorgement, prejudgment interest, and civil penalties

A U.S. District Court judge has approved a settlement between the Securities and Exchange Commission (SEC), Terraform Labs, and its former CEO, Do Kwon, that will see them pay billions in penalties and be virtually banned from the crypto industry.

The settlement, filed in the Southern District of New York (SDNY) on Thursday, was approved by District Court Judge Jed Rakoff. It includes Terraform Labs and Kwon paying a combined $4.5 billion in disgorgement and civil penalties. Additionally, they will be permanently banned from buying and selling all "crypto asset securities," including Terra ecosystem tokens.

The settlement comes two months after a New York jury found Terraform Labs and Kwon civilly liable for fraud stemming from the $40 billion collapse of the Terra ecosystem in May 2022. Terra's implosion led to the collapse of crypto hedge fund Three Arrows Capital, which, in turn, took out other crypto companies, including Genesis Global Capital and, indirectly, FTX.

“This case affirms what court after court has said: The economic realities of a product — not the labels, the spin, or the hype — determine whether it is a security under the securities laws,” SEC Chair Gary Gensler said in a Thursday press release. “Terraform and Do Kwon’s fraudulent activities caused devastating losses for investors, in some cases wiping out entire life savings. Their fraud serves as a reminder that, when firms fail to comply with the law, investors get hurt. Terraform and Kwon fought our efforts to investigate – taking a fight over investigative subpoenas all the way to the Supreme Court. Thankfully, with this settlement, the victims of their massive fraud will now get some justice.”

The SEC initially proposed a $5.3 billion settlement in the case, which lawyers for Terraform Labs countered by telling the judge that the company should be fined no more than $1 million in civil penalties. On June 6, lawyers for both Kwon and Terraform Labs agreed to the SEC's second settlement offer of $4.5 billion.

Kwon, who is still in custody in Montenegro awaiting a decision on his extradition, did not appear at the trial where the settlement was reached.

Terraform Labs is currently in Chapter 11 bankruptcy protection and, according to current CEO Chris Amani's trial testimony, has approximately $150 million in assets on hand. It is currently unclear how the company will pay the hefty fines.

The settlement is binding and cannot be appealed.

News source：https://www.kdj.com/cryptocurrencies-news/articles/judge-signs-b-terraform-kwon-settlement.html

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