- Terraform Labs and Do Kwon settle a $4.5B SEC lawsuit over Terra’s 2022 collapse.
- Investors claim $57M lawsuit against Terraform Labs and Do Kwon in Singapore.
- Terraform Labs plans to sell four firms to meet $4.5B settlement obligations.
Terraform Labs founder Do Kwon is facing a growing legal maelstrom; a $57 million lawsuit filed by Singaporean investors in October 2022 just the latest blow, adding to Kwon’s woes that include an Interpol Red Notice for skipping court appearances.
The lawsuit represents 350 investors burned by the spectacular collapse of TerraUSD, a stablecoin meant to hold a steady $1 value, and its sister currency, Terra LUNA. The May 2022 crash vaporized an estimated $40 billion from the market, crashing the crypto industry.
Many of these investors had entrusted their holdings to Anchor Protocol, a platform that lured them in with the promise of 20% annual returns. The lawsuit alleges that Anchor misrepresented TerraUSD as a safe, principal-protected investment, further fueling investor outrage.
Terraform Labs and Kwon denied any wrongdoing, maintaining their belief in the potential of TerraUSD. Kwon claimed he, too, lost money in the crash.
Among those seeking justice are Spanish investor Julian Moreno Beltran, who reportedly lost over $1.1 million, and Singaporean citizen Douglas Gan Yi Dong, who also poured substantial funds into the now-worthless cryptocurrencies. Both have enlisted the help of top Singaporean law firm Drew & Napier to fight their case.
SEC Takes Center Stage
The U.S. Securities and Exchange Commission (SEC) entered the fray with a high-profile civil trial against Terraform Labs and Do Kwon, accusing them of orchestrating a massive securities fraud. The trial, which began on March 25, 2024, unfolding in the U.S. District Court for the Southern District of New York, is a landmark case in the crypto world.
SEC attorney Devon Staren painted a grim picture of Terraform Labs as a “house of cards” built on deception, alleging that the company misled investors about the stability of TerraUSD. The SEC claims this instability contributed to a wider crypto market crash in 2022, leaving countless investors financially ruined.
Kwon, arrested in Montenegro in March 2023 for using false travel documents, faces potential extradition to the U.S. or South Korea, adding another dimension to this intricate legal drama.
Terraform Labs Settles with SEC for $4.5 Billion Crypto Case
Terraform Labs and its former CEO, Do Kwon, settled with the U.S. Securities and Exchange Commission (SEC) in June, agreeing to pay a substantial $4.5 billion in penalties and disgorgements. This resolution comes after a New York jury found them liable for civil fraud related to the $40 billion collapse of the Terra ecosystem.
As part of the settlement, filed in the Southern District of New York, Kwon and Terraform Labs face stringent restrictions, including a permanent ban from trading crypto asset securities within the Terra ecosystem.
This decision highlighted the SEC’s commitment to enforcing federal securities laws in the burgeoning crypto market. The court documents revealed that both Kwon and the current CEO, Chris Amani, consented to the terms on June 6, pending final approval from U.S. District Court Judge Jed Rakoff.
The agreed sum of approximately $4.47 billion included disgorgement, prejudgment interest, and civil penalties, with Kwon personally responsible for over $204 million. The settlement reduction from the SEC’s initial demand of $5.3 billion far exceeds Terraform Labs’ counteroffer, which suggested only a $1 million penalty.
During the proceedings, it was disclosed that Terraform, which is undergoing Chapter 11 bankruptcy protection, holds around $150 million in assets, a stark contrast to the hefty fines imposed.
The resolution of this case was poised to send a clear deterrent message across the crypto industry, emphasizing the severe repercussions of evading U.S. securities laws. The SEC’s actions reflected a rigorous stance on regulatory compliance, aiming to establish standardized behaviors for crypto assets under federal oversight.
Terraform Labs to Sell Four Firms in $4.5 Billion Settlement
Terraform Labs, the bankrupt cryptocurrency firm, later announced plans to divest four of its companies as part of its broader winddown strategy. The decision follows the earlier $4.5 billion settlement with the U.S. SEC. The settlement requires Terraform to resolve its financial obligations and conclude its operations.
On July 9, Terraform Labs revealed its intent to sell its portfolio tracking platform Pulsar Finance, crypto wallet platform Station, DAO management tool Enterprise, and smart contract automation protocol Warp. Pulsar Finance was acquired in November 2023, shortly before Terraform filed for Chapter 11 bankruptcy in January.
Enterprise, which launched in November 2022, and the Warp protocol, which remains under active development, are also included in the sale. Station, the crypto wallet platform, last received an update in March.
Terraform’s settlement with the SEC involves nearly $3.6 billion in disgorgement, a $420 million civil penalty, and approximately $467 million in prejudgment interest. Additionally, Do Kwon, Terraform’s co-founder and former CEO, agreed to pay $110 million in disgorgement, $14.3 million in prejudgment interest, and an $80 million civil penalty. The settlement effectively bars both Terraform and Kwon from participating in the cryptocurrency industry.
The legal action against Terraform stemmed from the collapse of its cryptocurrency Terra Luna Classic (LUNC) and its associated stablecoin TerraUSD (UST), now known as TerraClassicUSD (USTC). In May 2022, USTC lost its dollar peg, triggering a severe downward spiral in the value of both USTC and LUNC. This event led to significant financial losses, with both the assets effectively rendered worthless.
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