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Breaking: Do Kwon’s Terraform Agrees to Pay $4.47 Billion Fine in SEC Case

Hassan Shittu
Last updated: | 3 min read
Breaking: Do Kwon's Terraform Agrees to Pay $4.47 Billion Fine in SEC Case

In a landmark decision, Terraform Labs and its founder, Do Kwon, have agreed to pay the United States Securities and Exchange Commission (SEC) a $4.47 billion fine.

This agreement comes after months of legal battles and negotiations following the collapse of the Terra-Luna stablecoin ecosystem, which wiped out an estimated $40 billion from the crypto market.

Terraform Labs and Do Kwon were initially found liable for fraud related to the Terra-Luna crash, and despite their legal team’s efforts to reduce the fines to $1 million, the SEC maintained its stance on seeking billions in penalties. The settlement, announced today, includes a significant financial penalty but potentially averts a prolonged legal confrontation and additional sanctions.

Terraform Finally Agreed To Pay Fine

Terraform Labs and its founder, Do Kwon, have agreed to a $4.47 billion fine in their case with the SEC, as revealed in a recent post on X. This agreement follows intense legal battles and a series of high-profile developments over the past months.

The settlement includes disgorgement fines of around $3.6 billion, a civil penalty of $420 million, and nearly $467 million in prejudgment interest. In addition, Do Kwon is liable for $110 million in disgorgement penalties and roughly $14.3 million in prejudgment interest fines according to the settlement plan.

The SEC settlement documents. Source: Court Listener

The settlement filing also stipulates that all crypto assets belonging to the Luna Foundation Guard and all PYTH token holdings from Do Kwon will be transferred to cover the cost of the disgorgement fines and prejudgment interest. Any remaining amount from the sale of these assets will be applied to the civil penalty fines.

Page 8 of the settlement. Source: Court Listener

On April 30, Terraform Labs and Do Kwon’s legal team resisted the SEC’s proposed $5.3 billion fine, arguing for a significantly reduced penalty of $1 million.

Following the Terra-Luna collapse, The SEC initially requested a $4.7 billion disgorgement and prejudgment fine, along with $520 million in civil penalties. The crash, which occurred in early April, led to significant financial losses and intensified regulatory scrutiny on the company.

“The SEC has failed to prove that it is entitled to the expansive injunction and monetary sanctions it seeks against TFL,” the lawyers argued at the time, emphasizing the need for a more reasonable penalty.

Despite their arguments, the SEC continued to pursue substantial fines, reflecting its broader strategy of enforcing compliance in the crypto sector.

The SEC’s actions against Kwon and Terraform Labs stemmed from the collapse of their algorithmic stablecoins, TerraUSD and Luna, which wiped out approximately $40 billion from the cryptocurrency market in the spring of 2022.

The SEC accused Kwon and his company of failing to provide truthful disclosures and committing fraud through false and misleading statements, thereby causing devastating losses for investors.

A Potential Settlement Before Now

In May, Terraform Labs and Do Kwon reached a potential settlement in principle with the SEC, but the court records indicated that an oral argument scheduled for late May was canceled. The final agreement, which stemmed today, includes a substantial financial penalty of $4.47 billion but avoids further court battles.

SEC Chair Gary Gensler highlighted the importance of this case in setting a precedent for regulatory compliance in the crypto industry in a February 2023 statement, stating,

“We allege that Terraform and Do Kwon failed to provide the public with full, fair, and truthful disclosure as required for a host of crypto asset securities, most notably for LUNA and Terra USD.”

Notably, Brian Curran, former head of communications at Terraform, told the court on April 2 that spearheading public relations for the company made him “angry.”

Curran claimed he tried to be “transparent” to users while doing PR for Terraform; however, the company has always asked him to write false posts. He also revealed that working with Do Kwon, Terraform’s beleaguered founder, was troublesome.

“I was fairly angry, because I realized that he had tried to deceive me, to write a post that he knew to be false,” Curran said in the report.

As is now the case, Terraform has agreed to its guilt and has proven Gary Gensler’s allegations true. As of the time of writing, Kwon remains detained in Montenegro and faces potential extradition to the U.S. or South Korea.