Terraform Labs and its CEO Do Kwon have broadly reached an agreement to resolve a fraud case with the United States Securities and Exchange Commission (SEC), according to court documents.

Attorneys representing both sides revealed a preliminary agreement during a conference call before Judge Jed S. Rakoff on May 29.

The terms of the deal are expected to be finalized and submitted for court approval by June 12, 2024. Terraform and Kwon were found liable for defrauding investors in their civil case with the SEC in February. The parties were scheduled to discuss remedies in the case on May 29.

The SEC's case against Terraform and Kwon focused on the deceptive promotion and sale of cryptographic tokens, particularly the algorithmic stablecoin Terra USD (UST) and its related tokens.

The SEC accused Terraform and Kwon of offering crypto assets without proper registration and misleading investors about their stability and investment potential.

The collapse of Terraform in May 2022 triggered the latest crypto winter, causing a sharp drop in the markets and affecting multiple crypto companies and investors.

Kwon and Terraform face a significant financial penalty as the SEC sought approximately $5.3 billion in disgorgement of illicit profits, prejudgment interest, and civil penalties.

Terraform Labs, meanwhile, proposed a significantly smaller fine of $1 million, arguing against disgorgement of profits, especially from affiliated entities not directly named in the SEC case, such as the Luna Foundation Guard.

The SEC went further by proposing a ban on Kwon's roles as an officer or director in any entity that issues securities. The regulator also demanded that Kwon fully disclose details about his financial accounts and assets.