SEC and Terraform Labs Reach $4.47 Billion Settlement in Civil Fraud Case

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Terraform Labs, has agreed a $4.47 billion settlement with the SEC in a civil fraud case. Earlier the firm destroyed US$40 billion in investor assets and shook the cryptocurrency industry.

SEC’s Settlement with Terraform Labs

Terraform Labs, the company behind the failed LUNA and TerraUSD, has agreed to a settlement with the SEC over a lawsuit filed by co-founder Do Kwon for violating securities laws.

The settlement includes a total of $3.5 billion and pre-judgment interest of $466 million, making the company’s total owed $4.47 billion. 

Additionally, Do Kwon was also ordered to pay $204 million in settlement fees. The settlement deal prohibits Kwon and Terraform Labs from selling or acquiring cryptocurrency assets, including tokens in the Terra ecosystem.

Terraform Labs Faces $5.3 Billion Fine for Misleading Crypto Investors

Coinbase CLO Criticizes SEC Settlement

Paul Grewal expressed his concerns about X’s efficiency in the settlement. He pointed out that the resolution simply required the SEC to be listed as an unsecured creditor in Terraform’s bankruptcy case.

Paul also expressed his criticism of the SEC,

It’s predictably on-brand to tout a settlement with Kwon and the now-bankrupt Terraform totaling $4.7 billion.  But the settlement just makes the SEC an unsecured creditor in the BK and only orders Kwon to hand over $7 million of assets he actually has. There’s zero meaningful relief to fraud victims.

The Backstory of Terraform Case

The SEC claimed that Terraform disobeyed securities laws by providing stablecoins and the Mirror Protocol. This remark is consistent with similar charges made in pending litigation against the two exchanges, LUNA and TerraUSD. Both platforms faced claims of aiding the trade of unregistered securities.

On 4th December 2023, Judge Jed Rakoff granted summary judgment in the SEC’s action against Terraform Labs and former CEO Do Kwon. The decision confirms that Kwon and Terraform offered and sold unregistered securities, concentrating on LUNA and MIR tokens. The SEC claimed that Kwon and Terraform engaged in transactions involving unregistered security-based swaps and used fraudulent methods to defraud investors.

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