Terraform Labs, the company behind the failed TerraUSD and Luna cryptocurrencies, has agreed to pay a whopping $4.5 billion to settle a lawsuit filed by the U.S. Securities and Exchange Commission (SEC). The landmark settlement comes after Terraform’s cryptocurrencies collapsed in 2022, resulting in an estimated $40 billion in losses for cryptocurrency holders.

Background of the case

The SEC sued Terraform and its former CEO, Do Kwon, in February 2023 for fraud, alleging that the company deceived investors with the promise of 20% annual returns through its decentralized finance app Anchor ProtocolÂč. Terraform’s TerraUSD is an algorithmic stablecoin that relies on another cryptocurrency, Luna, to maintain a 1:1 peg to the US dollar. However, when this peg was breached in May 2022, both cryptocurrencies failed, resulting in heavy losses for investors.

Settlement incident

The $4.5 billion settlement includes:

- Refunds: $3.5 billion to compensate investors for their losses

- Pre-judgment interest: $466.9 million to account for interest accrued on losses

- Civil Penalty: $420 million to fine Terraform for its fraudulent activities Âč

In addition, Do Kwon will personally contribute $200 million to Terraform's bankruptcy fund and is prohibited from serving as an officer or director of a public company.

Meaning of resolution

This historic settlement serves as a warning to other companies considering similar fraudulent activities. The SEC emphasizes that the penalties are within the statutory limits and are intended to quickly restore investors who lost billions of dollarsÂč. Terraform Labs’ bankruptcy earlier this year paved the way for this settlement, which prioritizes compensation for investors and creditors who suffered losses.

Conclusion

The Terraform Labs settlement marks a major milestone in the SEC’s efforts to regulate the cryptocurrency industry. As the cryptocurrency market continues to grow, this landmark case will set a precedent for holding companies accountable for fraudulent activities and protecting investors from serious losses.

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