Terraform Labs and Do Kwon to Pay $4.5 Billion to Settle SEC Fraud Case

By André Beganski

The Securities and Exchange Commission (SEC) said that Terraform Labs and its former CEO Do Kwon have agreed to pay around $4.5 billion as part of a massive settlement agreement, according to court documents filed Wednesday.

The company and individual behind the $40 billion collapse of UST and LUNA in 2022 were found liable on civil fraud charges last month. A Manhattan jury found that Kwon and Terraform Labs misled investors about the success and stability of the Terra blockchain before it imploded.

As part of the agreement, Kwon and Terraform Labs would pay $4.5 billion back in ill-gotten gains (plus interest), alongside a $420 million civil penalty. They will also be prohibited from “engaging in crypto asset securities transactions” moving forward.

The once-bombastic crypto entrepreneur—who is currently fighting his extradition to either the U.S. or his home country of South Korea while in custody in Montenegro—will be required to cough up millions himself.

Kwon will personally pay monetary relief totaling $204 million, according to the agreement, which the SEC said would “send an unmistakable deterrent message.” The amount represents “nearly all the relief it sought against Kwon” for his misconduct, the agency noted.

Funds would be transferred from Kwon to Terraform Labs’ bankruptcy estate under the agreement, which still needs to be approved by Judge Jed Rakoff of the U.S. District Court Southern District of New York.

When UST and LUNA collapsed in 2022, it sparked a wave of crypto-related blowups that culminated in the collapse of crypto exchange FTX. Known as an algorithmic stablecoin, UST kept its value pegged to the dollar using a series of trading incentives—instead of being backed by assets, such as cash or U.S. Treasuries, like most stablecoins—until it didn’t.

Kwon was arrested in Montenegro late last year while trying to travel using a falsified passport. Amid an ongoing tug-of-war, a final determination has yet to be reached in Montenegro as to where the fallen mogul could potentially be sent next to face criminal charges.

The former Terra Labs head has been charged with fraud by the U.S. Department of Justice over Terra’s collapse. In South Korea, he’s been separately accused of financial crimes, such as fraud, bribery, and manipulating transaction volume, in addition to violating capital markets laws.

The fallen crypto mogul was released from prison in Montenegro months ago after serving a four-month sentence. But until his extradition matter is settled, the Kwon is expected to stay in the region.

Edited by Ryan Ozawa.

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