US Judge Signs Off On $4.5B Settlement Between Terraform And The SEC

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As a researcher with a background in finance and securities law, I find the recent $4.5 billion settlement between Terraform Labs, Do Kwon, and the SEC to be a significant development in the crypto industry’s regulatory landscape. The judge’s approval of this settlement carries substantial legal implications for all parties involved.

I’ve come across news that a US district court judge has approved a $4.5 billion settlement agreement between Terraform Labs, its founder Do Kwon, and the Securities and Exchange Commission (SEC) of the United States.

As an analyst, I would rephrase it as follows: I find that the settlement imposes a prohibition on Terraform Labs and Do Kwon from engaging in crypto-related activities. Additionally, they are mandated to pay a combined sum of $4.5 billion, which includes prejudgment interest, disgorgement, and civil penalties.

US Judge Signs Off On Settlement

The court ruling, endorsed by Judge Jed Rakoff of New York District Court, brings about considerable legal consequences. This decision forces Terraform and Do Kwon to pay hefty fines, making it difficult for them to participate in the crypto market again. The agreement stipulates that Terraform owes approximately $3.95 billion in total – including a payment of around $3.6 billion in disgorgement, a fine of around $420 million, and an additional $467 million in prejudgment interest. In comparison, Do Kwon is required to pay $124.3 million in total – consisting of $110 million in disgorgement, a penalty of $80 million, and $14.3 million in prejudgment interest.

A few months following a New York court’s decision that Do Kwon and Terraform Labs were responsible for fraud, leading to the historic $40 billion crash of the Terra ecosystem, the SEC announced a settlement. This catastrophic event had far-reaching consequences throughout the crypto community, causing the failure of various companies like Three Arrows Capital and Genesis Global Capital. The collapse also significantly impacted FTX. In response to the settlement, SEC Chair Gary Gensler commented,

“In this instance, the court reiterates a consistent ruling: The true economic nature of a product, not its labels or marketing, defines whether it falls under securities legislation. Terraform and Do Kwon’s deceitful actions led to substantial financial damage for investors, even erasing some people’s entire life savings. Their fraud serves as a stark warning about the consequences when businesses disregard the law. Despite resistance in the form of legal battles over subpoenas, this settlement brings relief to the victims of their extensive scam.”

Unclear How Fines Will Be Paid

The Securities and Exchange Commission originally proposed a settlement worth $5.3 billion. But Terraform’s legal team disputed this amount and requested that the company face civil penalties no greater than $1 million. By June 6th, both Terraform Labs and Do Kwon’s lawyers accepted the SEC’s revised offer of a $4.5 billion settlement.

Terraform Labs, led by CEO Chris Amani, is currently under bankruptcy protection. The company holds around $150 million in assets. However, it remains unclear how Terraform intends to cover the substantial $45 billion penalty. Meanwhile, Do Kwon, a key figure in the company, has been incarcerated in Montenegro for the past four months. He is wanted by both South Korean and American authorities for using false passports and documents to evade arrest. Montenegrian courts are now grappling with conflicting extradition requests from these two countries. Do Kwon’s legal troubles stem from criminal charges in each jurisdiction.

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2024-06-14 23:08