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Terraform Labs and Do Kwon Face $4.5B Fines in SEC Case

Terraform Labs and Do Kwon face $4.5 billion in fines and bans on crypto activities after SEC court ruling, emphasizing the need for regulatory compliance in the crypto industry.

The US District Court for the Southern District of New York has finalized a significant judgment against Terraform Labs and its co-founder Do Kwon, imposing substantial penalties and restrictions following violations of securities laws.

The court ordered Terraform Labs and Do Kwon to pay approximately $4.5 billion, marking a landmark enforcement by the Securities and Exchange Commission (SEC). This amount includes $3.6 billion in disgorgement, $467 million in prejudgment interest, and $420 million in civil penalties. Do Kwon is jointly liable for $110 million in disgorgement and $14.3 million in prejudgment interest, as well as an additional $80 million in civil penalties.

As part of the court’s decision, Kwon must transfer various assets to Terraform Labs’ bankruptcy estate. These assets, including PYTH tokens and other holdings, will help satisfy the monetary penalties and provide restitution to affected investors through a liquidating trust. Terraform Labs will treat the amount due as an unsecured claim in its bankruptcy case, ensuring the SEC receives the funds through distribution aligned with bankruptcy priorities.

The court’s order also enforces stringent restrictions on Kwon and Terraform Labs, prohibiting them from engaging in most crypto asset securities transactions. This includes a ban on transacting in unregistered securities and acting in roles involving registered securities. Moreover, Terraform Labs can only carry out specific transactions related to its bankruptcy proceedings, such as disposing of crypto assets in its bankruptcy estate, with court approval.

Do Kwon’s legal troubles are compounded by his ongoing custody battle in Montenegro, where he was arrested for attempting to travel with a falsified passport. Kwon faces potential extradition to the US or South Korea, where he is charged with multiple financial crimes, including fraud and bribery. The SEC believes the severe financial penalties and asset transfers will serve as a strong deterrent against future misconduct in the crypto industry.

The collapse of Terraform Labs’ UST and LUNA in 2022, which contributed to a series of crypto industry failures, underscores the importance of regulatory oversight. UST, an algorithmic stablecoin, lost its dollar peg, leading to a massive market collapse. This case against Terraform Labs and Do Kwon highlights the need for transparency and stability within the crypto market to protect investors and maintain market integrity.

The resolution of this high-profile SEC case against Terraform Labs and Do Kwon sends a clear message to the crypto industry: regulatory compliance is paramount, and violators will face substantial penalties. With $4.5 billion in fines and severe restrictions on future activities, the enforcement actions aim to prevent similar collapses and protect investors from fraudulent practices.


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