Terraform Labs to Pay $4.5 Billion to Settle SEC Fraud Charges

The Securities and Exchange Commission (SEC) has settled with Terraform Labs, the company behind the now-defunct TerraUSD stablecoin, and its former CEO, Do Kwon. The agreement, pending court approval, will see Terraform Labs pay a staggering $4.5 billion to the SEC.

The settlement, announced on Wednesday, includes $3.5 billion in disgorgement, over $460 million in prejudgment interest, and $420 million in civil penalties. Kwon, who faces separate criminal charges in South Korea, will pay $200 million to the Terraform bankruptcy estate.

The SEC’s action follows a trial earlier this year that found Terraform Labs and Kwon liable for orchestrating a “fraudulent scheme” that led to the collapse of TerraUSD in 2022, causing billions in losses for investors. The SEC had accused Terraform Labs of misleading investors about the stability of TerraUSD and its underlying cryptocurrency, Luna.

Terraform Labs Face $420 Million Penalty

In its filing, the SEC highlighted the severity of the fraud and the need for substantial penalties to deter future misconduct. “The proposed consent judgment both addresses the magnitude of this fraud by imposing significant remedial, punitive, and deterrent remedies, including a multi-billion dollar judgment against Defendants and provides for a meaningful and speedy recovery for investor victims that collectively lost billions when Defendants’ scheme collapsed,” the SEC wrote.

Additionally, the $420 million penalty against Terraform Labs and the $80 million penalty against Kwon are within statutory limits, the SEC asserted.

However, the agency emphasized that these substantial penalties would send a clear message to those engaging in fraudulent activities: they will be held accountable for their actions, regardless of potential short-term gains.

The SEC’s pursuit of this case underscores its commitment to protecting investors from deceptive practices in the rapidly evolving cryptocurrency market.

The settlement, if approved, will bring a conclusion to the SEC’s legal battle with Terraform Labs and provide some measure of restitution to those who lost significant sums in the aftermath of TerraUSD’s collapse.

It is also a significant victory for the SEC in its efforts to regulate the cryptocurrency industry and ensure a more secure and transparent environment for investors.