Terraform Labs reached a $4.47 billion civil settlement with the U.S. Securities and Exchange Commission after being found liable by a jury for defrauding cryptocurrency investors who lost approximately $40 billion when TerraUSD tokens and Luna collapsed in 2022, causing a disastrous recession that affected the entire crypto industry.
A proposed final ruling covering Terraform and its founder Do Kwon was filed in Manhattan federal court on Wednesday. It requires approval from U.S. District Judge Jed Rakoff, who oversaw the trial, which ended April 5.
Terraform’s judgment includes $4.05 billion in disgorgement plus interest and a $420 million civil penalty. It is unlikely that much of the sum will be paid because Terraform filed for bankruptcy in January. Instead, it will be treated as an unsecured claim in the Chapter 11 case, where Terraform is in liquidation.
The total sentence amounts to $4.55 million, including an $80 million civil penalty for Kwon. He agreed to be prohibited from conducting crypto transactions and required to transfer $204.3 million to Terraform’s bankruptcy estate.
“Issuing this ruling would ensure maximum return of funds to harmed investors and put Terraform out of business forever,” the SEC said in a court filing. “Therefore, this proposed sentence is fair, reasonable and in the public interest.”
Terraform and Kwon accepted the sentence. His attorneys did not immediately respond to requests for comment. Kwon was found liable for fraud in a civil case in Manhattan in early April.
The SEC accused Terraform and Kwon of misleading investors about the stability of TerraUSD, which it designed to maintain a constant price of $1, and of falsely claiming that Terraform’s blockchain was used in a popular Korean mobile payment app. .
TerraUSD and the closely linked Luna, a more traditional token that Kwon also designed, collapsed in May 2022 when TerraUSD failed to maintain its peg to the dollar.
Kwon did not attend the trial after having been detained in Montenegro since March 2023, while the United States and South Korea sought his extradition to face criminal charges. He has denied any wrongdoing.