TLDR
Terraform Labs and its co-founder, Do Kwon, have reached a “settlement in principle” with the SEC in a civil case alleging fraud.
The settlement comes less than two months after a Manhattan jury found Terraform Labs and Kwon liable for misleading investors about the stability of their products.
The SEC had sought a $5.3 billion penalty, while Terraform Labs argued for a lower penalty of $1 million and against disgorgement from affiliated entities.
The settlement terms are expected to be finalized and submitted for court approval by June 12, 2024.
Do Kwon is currently on bail in Montenegro, awaiting extradition to either the U.S. or South Korea, where he faces criminal charges.
In the ongoing legal saga surrounding Terraform Labs and its co-founder, Do Kwon, the parties have reached a “settlement in principle” with the U.S. Securities and Exchange Commission (SEC) in a civil case alleging fraud.
The agreement comes less than two months after a Manhattan jury found Terraform Labs and Kwon liable for misleading investors about the stability of their algorithmic stablecoin, TerraUSD (UST), and the associated LUNA token.
The collapse of the $40 billion Terraform Labs ecosystem in May 2022 triggered a widespread contagion in the cryptocurrency industry, leading to a prolonged “crypto winter” and significant losses for investors.
The SEC subsequently filed a civil case against Terraform Labs and Kwon, accusing them of offering unregistered securities and making false claims about the stability and investment potential of their products.
News of the settlement in principle emerged from a court filing on Thursday, which referenced a May 29 telephone conference attended by counsels for all parties.
The scheduled oral arguments were canceled as a result of the agreement, and the parties are required to submit documentation in support of the settlement to Judge Jed S. Rakoff by June 12, 2024.
Following the April verdict, the SEC had sought a substantial penalty of $5.3 billion, its steepest fine yet imposed on a cryptocurrency project. Terraform Labs countered, arguing for a significantly lower penalty of $1 million and objecting to disgorgement from affiliated entities not directly named in the SEC’s case, such as the Luna Foundation Guard.
In addition to the financial penalties, the SEC had proposed a prohibition on Do Kwon’s roles as an officer or director in any securities-issuing entity and demanded full disclosure of his financial accounts and assets. Kwon, however, claimed that providing such details would violate his Fifth Amendment rights against self-incrimination.
The settlement news had an immediate impact on the cryptocurrency market, with Terra’s LUNA token surging by as much as 38% to its highest level since April 12, according to data from coingecko.
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While the settlement with the SEC marks a significant milestone in the Terraform Labs case, Do Kwon continues to face legal challenges on multiple fronts.
The embattled crypto entrepreneur is currently on bail in Montenegro, awaiting extradition to either the United States or South Korea, where he faces criminal charges related to the collapse of the Terraform Labs ecosystem
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