Author: Jesse Coghlan, CoinTelegraph; Translated by: Tao Zhu, Golden Finance

A U.S. District Court judge has approved a $4.5 billion settlement between Terraform Labs, its co-founder Do Kwon, and the U.S. Securities and Exchange Commission.

New York District Court Judge Jed Rakoff approved the agreement on June 13. Under the agreement, Terra and Kwon will pay billions of dollars in fines and penalties to regulators while essentially banning them from the crypto industry.

Under the agreement, Terraform will pay nearly $3.6 billion in disgorgement, a $420 million civil penalty, and approximately $467 million in prejudgment interest.

Kwon agreed to pay, together with Terraform, $110 million in disgorgement and $14.3 million in prejudgment interest, as well as an $80 million civil penalty.

In May 2022, Terraform’s crypto ecosystem collapsed when its algorithmic stablecoin TerraUSD (UST) (now TerraClassicUSD (USTC)) lost its peg to the U.S. dollar.

The depegging set off a chain reaction of death for the network’s Terra Classic (LUNC) token, which was designed to help balance the stablecoin’s price.

The SEC sued Terraform and Kwon in February 2023, alleging securities law violations and fraud.

“This case confirms what the courts have said time and again: The economic reality of a product — not its label, its pitch, or its hype — determines whether it is a security under the securities laws,” SEC Chairman Gary Gensler said in a June 13 statement.

“Terraform and Do Kwon’s fraudulent activities caused devastating losses to investors, in some cases wiping out their life savings," he added. "Their fraud is a reminder that when companies fail to follow the law, investors suffer.”

The 2022 stablecoin depeg wiped out $45 billion worth of value on the Terra blockchain in a matter of days. The event sparked greater panic in the cryptocurrency market, causing many tokens to plummet in value.

Terraform Labs filed for bankruptcy in January, and it’s unclear how it will get the money to pay the massive settlement, as it disclosed $430.1 million worth of assets and $450.9 million worth of liabilities.

Meanwhile, Kwon is currently detained in Montenegro after spending four months in jail for trying to leave the country using a fake passport last March.

He has been released pending decisions by that country's courts on competing extradition requests from the United States and his native South Korea, where he faces criminal charges in both countries.

Kwon’s legal team successfully appealed his extradition last month and the Montenegrin High Court will decide where to extradite him.