The U.S. District Court for the Southern District of New York has issued a final judgment against Terraform Labs and its co-founder Do Kwon in this high-profile case brought by the U.S. Securities and Exchange Commission (SEC).
The judgment found the defendants guilty of numerous securities law violations and imposed severe penalties and restrictions on their future activities, including fines totaling approximately $4.5 billion.
The judgment includes $3.6 billion in disgorgement, $467 million in withholding interest and a $420 million civil penalty, according to a June 12 court filing.
Kwon is jointly and severally liable for the above-mentioned $110 million fine and $14.3 million in estimated interest.
In addition, Kwon must transfer various assets to the Terraform bankruptcy estate, including ownership interests in PYTH tokens and other assets. These assets will be used to pay fines and be distributed to damaged investors through a liquidation trust.
The order allows Terraform Labs to treat the amounts due as unsecured claims in its bankruptcy case, meaning the SEC will receive the funds based on the order of distribution priority after Terraform Labs’ bankruptcy plan becomes effective.
The SEC is authorized to use all authorized collection procedures to enforce the court judgment, including the right to exercise civil contempt of court if Kwon fails to comply with the surrender order within 30 days of the judgment.
Kwon must also pay $204.3 million in relief, separate from Terraform Labs’ payment responsibilities, including $110 million in disgorgement, $14.3 million in prejudgment interest, and an additional $80 million in civil penalties.
The order finds that Terraform Labs and Kwon violated the antifraud provisions of Section 10(b) of the Exchange Act and Section 17(a) of the Securities Act.
Additionally, it permanently prohibits Terraform Labs and Kwon from trading unregistered securities, trading crypto-asset securities, or inducing others to trade crypto-asset securities, among other related restrictions.
The restrictions allow Terraform to carry out certain transactions related to its bankruptcy case.
With court approval, the company can dispose of the Crypto assets in its bankruptcy estate and must destroy wallet keys and burn tokens as required.
Terraform Labs and Kwon will be prohibited from conducting any trading activities on their platforms and will not be allowed to allow third parties to withdraw, unlock and close positions on their platforms.
The order also permanently prohibits Kwon from serving as an officer or director of any issuer with a registered securities class or reporting obligations.
The SEC began its lawsuit against Terraform Labs and Kwon in February 2023, alleging that the company defrauded crypto asset investors, including through its now-defunct Terra USD (UST) stablecoin. In April of this year, the court found the defendants liable for fraud.
