In a significant development, Terraform Labs and its founder, Do Kwon, have agreed to pay the United States Securities and Exchange Commission (SEC) a $4.47 billion fine following the collapse of the Terra-Luna stablecoin ecosystem, which resulted in massive financial losses. The settlement includes disgorgement fines, civil penalties, and prejudgment interest totaling $4.47 billion, with additional penalties imposed on Do Kwon. The agreement concludes months of legal battles and negotiations, potentially averting a prolonged legal confrontation and additional sanctions. The SEC’s enforcement actions reflect a broader strategy to ensure compliance in the crypto sector.
The SEC’s actions against Terraform Labs and Do Kwon were prompted by the collapse of their algorithmic stablecoins, TerraUSD and Luna, which led to approximately $40 billion in losses in the cryptocurrency market in the spring of 2022. The SEC accused Kwon and his company of failing to provide truthful disclosures and committing fraud through false and misleading statements, resulting in devastating losses for investors. Despite efforts by their legal team to reduce the fines initially proposed by the SEC, Terraform Labs and Do Kwon ultimately agreed to the $4.47 billion settlement to resolve the case.
Following the Terra-Luna collapse, the SEC initially sought a $4.7 billion disgorgement and prejudgment fine, along with civil penalties of $520 million. Terraform Labs and Do Kwon’s legal team argued for a significantly reduced penalty of $1 million, but the SEC maintained its stance on seeking billions in penalties to enforce compliance in the crypto industry. The settlement plan involves transferring all crypto assets belonging to the Luna Foundation Guard and PYTH token holdings from Do Kwon to cover the cost of the fines, with any remaining amount applied to civil penalty fines.
In May, Terraform Labs and Do Kwon reached a potential settlement in principle with the SEC, but an oral argument scheduled for late May was canceled, leading to the final agreement announced today. The settlement of $4.47 billion acknowledged the SEC’s allegations of failure to provide full, fair, and truthful disclosure of crypto asset securities, particularly for LUNA and Terra USD. The case has significant implications for regulatory compliance in the crypto industry, with SEC Chair Gary Gensler emphasizing the importance of enforcing regulations in the sector to protect investors.
Former head of communications at Terraform, Brian Curran, testified in court about his experiences working for the company, stating that he was asked to write false posts and found working with Do Kwon troublesome. Curran’s testimony highlighted the lack of transparency and deceptive practices within the company, reinforcing the allegations made by the SEC. As Terraform Labs agreed to its guilt in the case, Do Kwon remains detained in Montenegro and faces potential extradition to the U.S. or South Korea for his involvement in the Terra-Luna collapse. The settlement of $4.47 billion marks a significant step towards addressing the consequences of the collapse and enforcing regulatory compliance in the crypto industry.
