Terraform Settles with SEC for $4.5 Billion


Terraform Settles Massive SEC Lawsuit for $4.5 Billion, Banned from Crypto Industry

A US District Court judge has finalized a hefty settlement between Terraform Labs, its co-founder Do Kwon, and the Securities and Exchange Commission (SEC). The deal, approved by Judge Jed Rakoff on June 13th, sees Terraform and Kwon pay billions in fines and penalties while facing a lifetime ban from the cryptocurrency industry.

The settlement details a significant financial penalty for Terraform. They will pay nearly $3.6 billion in “disgorgement” (returning ill-gotten gains), a $420 million civil penalty, and an additional $467 million in pre-judgment interest. Do Kwon, facing similar charges alongside Terraform, will contribute $110 million in disgorgement, $14.3 million in pre-judgment interest, and an $80 million civil penalty.

This settlement stems from the dramatic collapse of Terraform’s cryptocurrency ecosystem in May 2022. The key player in this downfall was TerraUSD (UST), an algorithmic stablecoin designed to maintain a one-to-one peg with the US dollar (now known as TerraClassicUSD or USTC). Unfortunately, UST lost its peg, triggering a domino effect. Terra Classic (LUNC), the token meant to stabilize UST’s price, entered a “death spiral,” losing significant value.

The SEC filed a lawsuit against Terraform and Kwon in February 2023, accusing them of fraud and violating securities laws. SEC Chair Gary Gensler emphasized the importance of this case in a statement on June 13th: “This case affirms… the economic realities of a product determine whether it’s a security, not labels, marketing, or hype.” He further highlighted the devastating losses faced by investors, with some losing their life savings due to “Terraform and Do Kwon’s fraudulent activities.”

This stablecoin de-pegging event in 2022 caused a major financial earthquake within the Terra blockchain, wiping out a staggering $45 billion in value within days. The broader cryptocurrency market felt the tremors as well, with numerous tokens experiencing significant price drops.

Adding another layer of complexity, Terraform Labs filed for bankruptcy in January. How they will manage to pay the enormous settlement remains unclear, considering their reported assets of $430.1 million fall short of their $450.9 million liabilities.

Do Kwon’s situation is equally tangled. Currently in custody in Montenegro, he previously served jail time for using fake passports in an escape attempt last March. Now released, he awaits a decision on extradition requests from both the US and South Korea, where he faces separate criminal charges. Notably, Kwon’s legal team successfully appealed his extradition last month, leaving Montenegro’s High Court to decide his ultimate destination.

The Terraform settlement represents a significant moment for the cryptocurrency industry. It highlights the growing role of regulatory bodies like the SEC and emphasizes the potential consequences of alleged fraud within the crypto space.

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Author: Sb

This post was originally published on cryptonewsfarm.com

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