Settlement includes hefty fines and a permanent ban on trading crypto asset securities, marking a significant development after the Terra ecosystem collapse.
The recent settlement between Terraform Labs, its former CEO Do Kwon, and the U.S. Securities and Exchange Commission (SEC) marks a significant development in the aftermath of the Terra ecosystem collapse. The agreement involves a substantial financial penalty and a permanent ban on trading crypto asset securities.
In May 2022, the Terra ecosystem, a blockchain-based platform, experienced a catastrophic collapse, resulting in a loss of $40 billion. This event triggered an investigation by the SEC, which subsequently charged Terraform Labs and Do Kwon with civil fraud. The charges alleged that the company and its CEO had misled investors and engaged in fraudulent activities.
Terraform Labs and Do Kwon have agreed to pay a combined total of $4.5 billion to the SEC. This amount includes disgorgement, prejudgment interest, and civil penalties. Disgorgement refers to the repayment of ill-gotten gains, while prejudgment interest is the interest on those gains from the time they were obtained until the settlement. Civil penalties are fines imposed as punishment for the fraudulent activities.
Of the total penalty, Do Kwon is personally responsible for paying over $204 million. Additionally, the settlement includes a permanent ban on both Kwon and Terraform Labs from trading crypto asset securities. This means they are prohibited from engaging in any activities involving the buying, selling, or trading of crypto assets that are considered securities under U.S. law.
The settlement agreement is currently awaiting approval by a judge in New York. This judicial approval is a standard procedure to ensure that the terms of the settlement are fair and just. Once approved, the settlement will be legally binding.
Do Kwon is currently in custody in Montenegro. His legal troubles are not limited to the SEC charges, as he faces additional legal challenges in other jurisdictions. The settlement with the SEC is a significant step towards resolving some of these issues, but it does not encompass all of his legal battles.
