Terraform Labs to Pay $4.5B as Settlement to the SEC

Singapore-based blockchain project Terraform Labs and its co-founder Do Kwon have agreed to pay a $4.5 billion fine to settle a lawsuit against the United States Securities and Exchange Commission (SEC). The billion-dollar-worth penalty, involving civil fraud charges, follows a crypto crash triggered by the Terraform Labs in 2022.

Terraform Labs Agrees to $4.5B Settlement

The SEC’s legal team filed the settlement deal with a federal judge in New York earlier today. Once approved, Terraform Labs and Kwon will be banned from acquiring “crypto asset securities,” including digital assets within the Terra ecosystem.

A breakdown of the settlement fine shows that Terraform Labs will pay approximately $3.59 billion and a $420 million penalty. Kwon will pay $204.3 million from his pocket, $110 million in disgorgement, and $80 million in penalty, including interest. The infamous Terra founder will also pay a minimum of $204.3 million to the Terraform bankruptcy estate, to be distributed among the affected Terra investors.

Recall that the SEC had previously requested from a U.S. district judge that Terraform Labs pay a $5.3 billion settlement. The financial watchdog wrote in a letter that “the entry of this judgment would ensure the maximal return of funds to harmed investors and put Terraform out of business for good.”

Terra’s Dramatic Crash

Terra’s woes trail back to May 2022 when one of its flagship products, the UST algorithmic stablecoin, lost its peg to the U.S. dollar. This depeg triggered a chain of events that caused the Terra blockchain to halt operations. The blockchain network soon lost a market capitalization of about $45 billion, shaking the crypto industry. Other crypto-focused projects were also affected by the market condition.

Last year, Kwon was arrested in Montenegro while escaping using a fake passport. Since then, there have been talks about extraditing him to the U.S. or South Korea. In January 2024, Terraform Labs filed for bankruptcy protection.

Despite the latest settlement deal, Kwon will still face a separate lawsuit over the sales of the UST stablecoin.