Terraform Labs and its former CEO, Do Kwon, have agreed to a $4.5bn settlement with the US. Securities and Exchange Commission following a jury verdict that held them liable for orchestrating a prolonged fraud involving crypto asset securities, according to a report by Finextra.
The settlement was approved by a US District Court judge two months after the jury found Terraform and Kwon civilly liable for fraud. This verdict came in the wake of the $40bn collapse of the company and its crypto ecosystem.
The downfall occurred in May 2022, when the TerraUSD stablecoin lost its peg to the US dollar. This de-pegging triggered a catastrophic drop in the value of TerraUSD and Terraform’s other tokens, plunging them to nearly zero and resulting in “devastating losses to countless investors,” according to the SEC.
The collapse of Terra had a ripple effect across the cryptocurrency industry, leading to the failure of crypto hedge fund Three Arrows Capital, which in turn impacted Genesis Global Capital and FTX.
The settlement judgment, to which Terraform and Kwon consented, includes $4.05bn in disgorgement plus interest, and a $420m civil fine for the company. Kwon himself faces an $80m civil penalty and $124m in disgorgement and interest.
However, the likelihood of the full amount being paid is slim, as Terraform filed for bankruptcy in January. The settlement amounts will be treated as unsecured claims in the Chapter 11 bankruptcy case, where Terraform is currently undergoing liquidation, according to Reuters.
