Terraform Labs and its co-founder Do Kwon have been hit with a staggering fine of $5.3 billion. This comes on the heels of a court ruling that found them guilty of a multi-billion-dollar fraud, marking a significant setback for the company.
On April 19, a court document revealed that the U.S. Securities and Exchange Commission (SEC) had requested Kwon and Terraform to pay approximately $4.7 billion in disgorgement and prejudgment interest. This was due to their involvement in the infamous Terra-Luna collapse of 2022. In addition to this, the SEC is seeking further civil penalties of $420 million and $100 million from Terraform and Kwon respectively.
The SEC, in its filing, emphasized the need for the court to send a clear and strong message. It condemned the defendants’ audacious misconduct and their misguided attempts to justify their actions by creating new rules and standards for crypto markets, which directly contravene federal securities laws.
The jury of a New York civil court found Kwon and his company liable for misleading their customers about the safety of investing in their algorithmic stablecoin, Terra USD (UST), and the utility of its underlying blockchain. Court documents indicate that crypto investors purchased more than $2 billion worth of UST from exchanges and other trading venues.
The SEC described its proposed fines as “conservative” yet “reasonable,” especially considering the enormous wealth Kwon accumulated from Terraform’s doomed stablecoin. However, both the company and its founder are contesting the amount of the civil penalties. Terraform Labs argues that a maximum fine of $3.5 million would be more fitting, while Kwon has proposed to pay a mere $800,000.
This case serves as a stark reminder of the risks and challenges in the rapidly evolving world of cryptocurrencies, and the need for robust regulatory oversight to protect investors and maintain market integrity.
