The Securities and Exchange Commission (SEC) announced that Terraform Labs PTE, Ltd. and Do Kwon agreed to pay more than $4.5 billion after a unanimous jury verdict found them responsible for orchestrating a years-long crypto-asset securities fraud that led to massive investor losses when the system collapsed.
A nine-day jury trial in April revealed the extent of the defendants’ lies to victims about falsely using the Terraform blockchain to settle transactions and the security stability of their crypto assets, UST. The SEC also offered evidence at trial that showed that, in May 2022, after UST was delinked from the US dollar, the price of UST and Terraform’s other tokens fell to near zero. This wiped out $40 billion in market value almost overnight and caused catastrophic losses to countless investors, including many retail investors who believed the defendants’ lies and poured their savings into the Terraform ecosystem.
The SEC charged Terraform and Kwon in the US District Court for the Southern District of New York on February 16, 2023, with securities fraud and offering and selling securities in unregistered transactions. On December 28, 2023, the District Court found Terraform and Kwon liable for offering and selling crypto asset securities in unregistered transactions.
On January 21, 2024, Terraform filed a voluntary Chapter 11 petition in the US Bankruptcy Court for the District of Delaware. On April 5, 2024, a jury unanimously found Terraform and Kwon guilty of securities fraud after less than two hours of deliberation.
As part of the settlement, Terraform agreed to pay $3,586,875,883 in disgorgement, $466,952,423 in prejudgment interest and a civil penalty of $420,000,000. Terraform also agreed to stop selling its crypto-asset securities, wind down its operations, replace two of its directors and distribute its remaining assets to victimized investors and creditors through a liquidation plan, subject to approval by the court in Terraform’s pending bankruptcy case.
Kwon agreed to pay $110,000,000 in disgorgement and $14,320,196 in prejudgment interest jointly and severally with Terraform, as well as an $80,000,000 civil penalty.
In addition, the defendants consented to a final judgment permanently enjoining them from violating the registration and fraud provisions they violated.