Terraform Labs, Now Bankrupt, Settles with US for $4.47 Billion

Terraform Labs agreed to a $4.47 billion civil settlement with the US Securities and Exchange Commission following a jury’s verdict that found them liable for defrauding cryptocurrency investors.

The investors suffered approximately $40 billion in losses when the TerraUSD and Luna tokens collapsed in 2022, causing a significant downturn across the crypto industry.

Terraform Labs, Now Bankrupt, Settles with US for $4.47 Billion

The proposed final judgment for Terraform Labs and its founder Do Kwon was filed on Wednesday in Manhattan federal court. Approval of the settlement is pending from US District Judge Jed Rakoff, who presided over the trial ending on April 5th.

Terraform’s judgment consists of $4.05 billion in disgorgement plus interest, alongside a $420 million civil fine.

However, due to Terraform filing for bankruptcy in January, much of this amount is unlikely to be paid and will be considered an unsecured claim in the Chapter 11 proceedings, as Terraform undergoes liquidation.

The overall judgment totals $4.55 billion, which also encompasses an $80 million civil fine imposed on Kwon. As part of the settlement, Kwon has agreed to a ban from engaging in crypto transactions and must transfer $204.3 million to Terraform’s bankruptcy estate.

“The SEC stated in a court filing that approving this judgment would guarantee the highest possible recovery of funds for affected investors and permanently shut down Terraform,” the statement read. “Therefore, the proposed judgment is deemed fair, reasonable, and in the public interest.”

Terraform and Kwon agreed to the terms of the judgment, with their legal representatives not immediately available for comment. Kwon was previously found liable for fraud in a Manhattan civil case in early April.

The SEC alleged that Terraform and Kwon misled investors regarding the stability of TerraUSD, which Kwon created to peg consistently at $1, and falsely asserted that Terraform’s blockchain was integrated into a popular Korean mobile payment application.

In May 2022, TerraUSD and the closely associated Luna, another token designed by Kwon, collapsed when TerraUSD failed to maintain its peg to the US dollar.

Kwon did not participate in the trial as he had been detained in Montenegro since March 2023, with both the US and South Korea pursuing his extradition for criminal charges. Kwon has denied any wrongdoing.

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