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

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

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A United States district court judge has signed off on a $4.5 billion settlement between Terraform Labs, Do Kwon and the United States Securities and Exchange Commission. 

The settlement effectively bans Terraform Labs and Do Kwon from participating in the crypto industry and also requires the parties to pay $4.5 billion in prejudgment interest, disgorgement, and civil penalties. 

US Judge Signs Off On Settlement

The settlement, approved by New York District Court Judge Jed Rakoff, carries substantial legal implications. It requires Terraform and Do Kwon to pay significant fines, effectively barring them from the crypto industry. The settlement terms include Terraform’s payment of almost $3.6 billion in disgorgement, a civil penalty of around $420 million, and $467 million in prejudgment interest. On the other hand, Do Kwon agreed to pay $110 million in disgorgement, a civil penalty of $80 million, and $14.3 million in prejudgment interest.

The settlement comes only a few months after a New York jury found Do Kwon and Terraform Labs liable for fraud after the Terra ecosystem’s staggering $40 billion collapse. The collapse had unprecedented ramifications for the crypto ecosystem, leading to the collapse of several companies, such as crypto hedge fund Three Arrows Capital and Genesis Global Capital. It even contributed to the collapse of FTX. Speaking about the settlement, SEC Chair Gary Gensler stated, 

“This case affirms what court after court has said: The economic realities of a product — not the labels, the spin, or the hype — determine whether it is a security under the securities laws. Terraform and Do Kwon’s fraudulent activities caused devastating losses for investors, in some cases wiping out entire life savings. Their fraud serves as a reminder that when firms fail to comply with the law, investors get hurt. Terraform and Kwon fought our efforts to investigate – taking a fight over investigative subpoenas all the way to the Supreme Court. Thankfully, with this settlement, the victims of their massive fraud will now get some justice.”

Unclear How Fines Will Be Paid

The Securities and Exchange Commission had initially proposed a $5.3 billion settlement. However, lawyers representing Terraform countered this argument and told the judge the company should not be fined more than $1 million in civil penalties. By June 6th, lawyers for Terraform Labs and Do Kwon agreed to the SEC’s amended settlement offer of $4.5 billion. 

Terraform Labs is currently in Chapter 11 bankruptcy protection. According to CEO Chris Amani’s testimony, the company has approximately $150 million in assets on hand. So far, it is not clear how Terraform will pay the $45 billion penalty. On the other hand, Do Kwon remains in prison in Montenegro and has so far served four months in prison for using fake passports and documents in an attempt to leave the country. Courts in Montenegro have to now decide on competing extradition requests from South Korea and the US. Do Kwon faces criminal charges in both countries.

Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

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