Terraform Labs and its CEO, Do Kwon, have reached a preliminary agreement to settle a fraud case with the U.S. Securities and Exchange Commission (SEC), as stated in court documents.
During a telephone conference on May 29, lawyers representing both parties revealed the settlement in principle. The terms of the settlement are expected to be finalized and presented for court approval no later than June 12, 2024.
In February, Terraform and Kwon were held responsible for defrauding investors in their civil case with the SEC. On May 29, the parties were scheduled to discuss potential remedies for the case.
The SEC’s case against Terraform and Kwon primarily focused on the misleading promotion and sale of crypto tokens, specifically the algorithmic stablecoin Terra USD (UST) and its associated tokens. The SEC accused Terraform and Kwon of offering crypto assets without proper registration and deceiving investors regarding their stability and investment potential.
The collapse of Terraform in May 2022 triggered the recent crypto winter, resulting in a significant market downturn and impacting numerous crypto firms and investors.
As a result of the SEC’s claims, Kwon and Terraform face a substantial financial penalty. The SEC is seeking approximately $5.3 billion in disgorgement, prejudgment interest, and civil penalties. However, Terraform Labs has proposed a significantly lower penalty of $1 million, arguing against disgorgement, particularly from affiliated entities, such as the Luna Foundation Guard, which were not directly named in the SEC’s case.
The SEC has additionally recommended a ban on Kwon’s ability to hold roles as an officer or director in any securities-issuing entity. The regulator has also requested that Kwon fully disclose information about his financial accounts and assets. In a separate filing, Kwon claimed that providing details about his assets and accounts would violate his Fifth Amendment rights against self-incrimination.
In March 2023, Kwon was arrested for falsifying travel documents while attempting to leave Montenegro, where he may face charges. He was later released on bail, and the U.S. is currently seeking his extradition.
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Terraform's Do Kwon Settles Fraud Case with SEC