Terraform Labs, Do Kwon Agree to Pay SEC a Combined $4.5B in Civil Fraud Case

Terraform Labs and its former CEO Do Kwon have agreed to a settlement agreement with the U.S. Securities and Exchange Commission (SEC) that would see them forking over a combined $4.5 billion in disgorgement and civil penalties.

The settlement agreement, which was filed Wednesday, would also permanently ban Kwon and Terraform Labs from buying and selling crypto asset securities – including all of the tokens in the Terra ecosystem.

In addition to their proposed final judgment, lawyers for the SEC filed a letter with the court urging the New York judge overseeing the case, U.S. District Court Judge Jed Rakoff of the Southern District of New York (SDNY), to approve the settlement agreement.

“If approved, the proposed judgment will send an unmistakable deterrent message to not only those who engage in brazen misconduct, but also to all those who seek to evade the requirements of the federal securities laws by crafting new standards of behavior for crypto assets that fall under the purview of the federal securities laws,” the lawyers wrote. The SEC declined to comment further.

A representative for Terraform Labs declined to comment on the proposed settlement or what it means for Terraform Labs’ future.

In April, a New York jury found Kwon and Terraform Labs liable on civil fraud charges brought against them by the SEC in connection with the $40 billion implosion of the Terra ecosystem in May 2022. Kwon – who is still in custody in Montenegro where he awaits a decision on his extradition to either the U.S. or his native South Korea to face criminal charges for his role in Terra’s collapse – was not in attendance for the trial.

According to court documents, Kwon and Terraform Labs’ current CEO, Chris Amani, both agreed to the terms of the settlement on June 6, though the settlement agreement must still be approved by the New York judge overseeing the case before it is made binding.

Of the $4,473,828,306 that Terraform Labs and Kwon must pay to the SEC in disgorgement, prejudgment interest, and civil penalties, Kwon must pay at least $204,320,196 out of his own pocket. The steep penalty is slightly lower than the SEC’s first settlement offer of $5.3 billion in fines, but much higher than the virtual slap on the wrist – a $1 million civil penalty and no disgorgement or injunctions – Terraform Labs suggested to the court in its April memorandum of opposition to the SEC’s motion for final judgment.

During Terraform’s trial, Amani testified that the company, which is currently in Chapter 11 bankruptcy protection, had approximately $150 million in assets remaining.