Terraform Labs, a now-defunct crypto firm, has recently come to a settlement with the Securities and Exchange Commission (SEC) regarding fraudulent activity related to the defunct Terra blockchain. The settlement involves a massive $4.47 billion fine that Terraform Labs has agreed to pay. This fine is meant to address the magnitude of the fraud and facilitate a speedy recovery for the billions of dollars lost by the network’s investors.
In a letter to US District Judge Jed Rakoff, the SEC requested approval of the proposed final consent judgment, which includes $3.6 billion in disgorgement, $466 million in prejudgment interest, and a $420 million civil penalty. The agency stated that Terraform has agreed to provide all the relief sought by the Court. Additionally, Do Kwon, the co-founder of Terraform, has agreed to pay nearly all the penalties requested by the SEC, including $204 million in monetary relief for the Terraform Labs bankruptcy estate to assist harmed investors.
The SEC Charges
The SEC charged Terraform and Kwon with securities fraud in 2023 in connection to the fallen Terra blockchain, which experienced a significant blowup resulting in losses across its LUNA and UST tokens. A jury found Terraform and Kwon guilty of misleading investors and engaging in deliberate fraud earlier in the year. The SEC aims to maximize the return of funds to harmed investors and permanently shut down Terraform.
If approved, this settlement would be the largest in a crypto fraud case, surpassing even Binance’s $4.3 billion settlement with the Justice Department. However, there are doubts about whether Terraform or Kwon have the financial means to pay the charges. CryptoQuant CEO Ki Young Ju expressed skepticism, stating that a $4.47 billion cash-out seems implausible given the financial standing of Terraform and Kwon.
The settlement between Terraform Labs and the SEC highlights the consequences of fraudulent activity in the crypto space. While the significant fine aims to provide restitution to investors, the practicality of enforcing such a hefty penalty remains uncertain. The outcome of this case will shape future regulatory actions in the crypto industry and serve as a cautionary tale for others involved in similar activities.