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SEC reaches $4.47 billion settlement with now-bankrupt cryptocurrency company Terraform Labs

Terraform Labs reached a $4.47 billion civil settlement with the U.S. Securities and Exchange Commission after a jury found the company liable for defrauding cryptocurrency investors who lost about $40 billion when TerraUSD and Luna tokens collapsed in 2022.

A proposed final judgment involving Terraform and its founder Do Kwon was filed in Manhattan federal court on Wednesday. The judgment requires the approval of U.S. District Judge Jed Rakoff, who oversaw the trial that ended on April 5.

Terraform's judgment includes $4.05 billion in disgorgement and interest, and a $420 million civil penalty.

Since Terraform

filed for bankruptcy in January, it is unlikely to pay most of the money. Instead, it will be treated as an unsecured claim in the Chapter 11 case, which Terraform is in the process of liquidating.

The total judgment is $4.55 billion, including an $80 million civil penalty against Kwon. He agreed to be banned from cryptocurrency trading and was required to transfer $204.3 million to Terraform's bankruptcy estate.

"The entry of this judgment will ensure the maximum return of funds to harmed investors and a permanent closure of Terraform," the SEC said in a court filing. "Accordingly, this proposed judgment is fair, reasonable, and in the public interest."

Terraform and Kwon consented to the judgment. Their lawyers did not immediately respond to requests for comment.

The SEC accused Terraform and Kwon of deceiving investors about the stability of TerraUSD, which he designed to maintain a constant price of $1, and falsely claiming that Terraform's blockchain was used in a popular mobile payment app in South Korea.

TerraUSD and the closely related Luna, a more traditional token also designed by Kwon, collapsed in May 2022 when TerraUSD could not maintain its peg to the U.S. dollar.

Kwon has been imprisoned in Montenegro since March 2023 and has not appeared in court for the U.S. and South Korea seeking his extradition to face criminal charges.He denies any wrongdoing.