SEC Case Against Terraform and Do Kwon Approaches Settlement

SEC Fraud Case Against Terraform and Do Kwon Approaches Settlement

Key Takeaways

Terraform Labs and Do Kwon are nearing a settlement with the SEC in a fraud case, with final terms expected by June 12;
The SEC's case involves allegations of misleading investors in the promotion and sale of TerraUSD and other tokens;
The SEC is seeking around $5.3 billion in penalties, while the company has proposed a $1 million settlement.

Terraform Labs and its former CEO, Do Kwon, are on the brink of resolving a fraud case with the US Securities and Exchange Commission (SEC), as revealed in recent court documents.

During a telephone conference on May 29, attorneys for both Terraform Labs and Kwon disclosed that they have reached a preliminary agreement to settle the fraud charges.

The finalized settlement terms are anticipated to be ready and submitted for court approval by June 12, 2024.

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The commission has demanded about $5.3 billion in disgorgement, prejudgment interest, and civil penalties from the defendants. Terraform Labs suggested a penalty of $1 million, arguing against disgorgement from entities like the Luna Foundation Guard, which were not explicitly named in the SEC's case.

The SEC has also suggested banning Do Kwon from holding officer or director positions in securities-issuing companies. Additionally, the SEC demanded full disclosure of Kwon's financial accounts and assets. However, Kwon has invoked his Fifth Amendment rights, claiming that such disclosures could lead to self-incrimination.

These legal issues follow the fall of Terraform Labs in May 2022, which marked the start of the "crypto winter" and led to financial losses for numerous crypto companies and investors.

The SEC accused Terraform Labs and Do Kwon of deceptive promotion and sale of crypto, especially TerraUSD (UST) and other Terra-related tokens. The regulator claimed that Terraform and Kwon misled investors by promoting these tokens without proper registration and providing false assurances about their stability and potential returns.

A US court found Terraform Labs and Kwon liable for defrauding investors in April 2024.

Kwon was arrested in March 2023 in Montenegro for attempting to leave the country with falsified documents. Although he was released on bail, Kwon faces potential legal actions in Montenegro and is subject to a US extradition request.

The upcoming weeks will be crucial as the court reviews and potentially approves the settlement terms.