The United States Securities and Exchange Commission (SEC) has taken legal action against Terraform Labs and its co-founder, Do Kwon, following a verdict in a civil case. The SEC has filed a motion requesting billions of dollars in disgorgement and civil penalties.
In the motion filed on April 19 in the U.S. District Court for the Southern District of New York, the SEC is seeking approximately $4.7 billion in disgorgement and prejudgment interest from Kwon and Terraform after the civil case ruling. The commission is also requesting a combined $520 million in civil penalties, with $420 million from Terraform and $100 million from Kwon. Both Terraform and Kwon, along with the SEC, have submitted their briefs for potential remedies in the civil case. Terraform has suggested a maximum civil penalty of $3.5 million, while Kwon proposes only $800,000.
In addition to the monetary judgment, the SEC has proposed barring Kwon from serving as an officer or director of a securities issuer and requiring him to provide complete details of his accounts and assets. If approved, Terraform would also be subject to a “conduct-based injunction” to prevent engaging in similar fraudulent behavior. The proposed remedies and civil judgment are still awaiting a ruling by a judge.
The SEC filing stated, “Defendants have not shown remorse for their conduct, nor can there be any doubt that they are in a position where additional violations are not only possible but likely are already occurring. The Court should send an unequivocal message that this sort of brazen misconduct, and Defendants’ misbegotten attempt to excuse their behavior by crafting new rules and standards of behavior for crypto markets in contravention of the federal securities laws… will not be tolerated.”
On April 5, a jury found Terraform and Kwon guilty of defrauding investors through misleading statements about the offer and sale of TerraUSD (UST), Luna (LUNA), and wLUNA. Terraform has yet to make a public statement regarding the April 19 filing.
During the SEC trial, Kwon was absent as he is currently involved in court proceedings in Montenegro. In March 2023, he was arrested for using forged travel documents while trying to leave the country. Although he was later released and allowed to travel within Montenegro, it is still unclear whether Kwon will be extradited to the U.S. or South Korea, where he faces potential criminal charges.
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