The settlement would address a civil lawsuit initiated by the SEC after Terraform’s collapse in May, 2022.
Terraform Labs has agreed to pay $4.47 billion to settle a civil lawsuit with the U.S. Securities and Exchange Commission (SEC). The settlement marks one of the largest payouts in SEC history.
Terraform Labs, the blockchain company behind the Terra blockchain and its associated stablecoin, TerraUSD (UST), came under the SEC’s scrutiny following UST’s collapse in May 2022.
The SEC had accused the company and Do Kwon of misleading investors in 2021 about the stability of TerraUSD, a stablecoin designed to maintain a value of $1. The regulator also accused them of falsely claiming Terraform’s blockchain was used in a popular Korean mobile payment app.
SEC and Terraform Labs Settlement Requirements
The total settlement includes approximately $3.6 billion in disgorgement fines, a civil penalty of $420 million, and nearly $467 million prejudgment interest.
The settlement was reached after a jury found Terraform Labs and its co-founder liable for the collapse of the Terra ecosystem, which resulted in the loss of $40 billion in investor assets.
Under the settlement plan, Kwon is responsible for paying $110 million in disgorgement penalties and approximately $14.3 million in prejudgment interest fines.
“Payment of the monetary remedies against Kwon shall be deemed satisfied, provided that all transfers by Kwon to the SEC and the Terraform bankruptcy estate in the Bankruptcy Case total no less than $204,320,196, excluding the value of any Terraform Crypto Assets transferred to the Terraform bankruptcy estate, only if and until Kwon completes: (1) transferring into an escrow account agreed by Kwon and the Commission staff $4,700,000 within 30 days of Final Judgement,” the settlement filing mentioned.
The settlement filing also required the transfer of all crypto assets held by the Luna Foundation Guard and all PYTH token holdings from Kwon to cover the cost of the disgorgement fines and prejudgment interest. The settlement noted that any remaining funds from the sale of these assets would be applied to the civil penalty fines.
On April 5, 2024, a unanimous jury reached a verdict, finding the defendants liable for violating the anti-fraud provisions of the Securities Exchange Act.
In addition, on March 5, 2024, the Appellate Court of Montenegro annulled the decision of the High Court of Podgorica to authorize Kwon’s extradition to the United States.