The United States Securities and Exchange Commission (SEC) has confirmed Terraform Labs’ decision to pay up to $4.5 billion settlement over its involvement in years-long crypto fraud.
According to the regulator, the settlement covers $3.5 billion in disgorgement, $460 million in prejudgment interest, and $420 million as a civil penalty for orchestrating a scheme that led to massive losses in investors’ money.
Earlier, the regulatory agency filed fraud related charges against Terraform Labs and its former CEO, Do Kwon. In the filing, the SEC accused the company and Kwon of misleading investors by promising them 20% annual returns on their investments. The agency also claimed that investors lost not less than $40 billion to the scheme.
After years of trials, the SEC and Terraform Labs reached an agreement on the settlement even before the May 29, 2024 court hearing. The settlement will also see Do Kwon contribute over $200 million to the Terraform bankruptcy estate. The former CEO was also restrained from taking an officer or director role in any public company.
Terraform Labs filed for bankruptcy
Recall that in January, Terraform Labs after its collapse in 2022 filed for Chapter 11 bankruptcy in the United States, according to court papers. In the filing with the bankruptcy court in Delaware, listed assets and liabilities of the firm were between the range of $100-$500 million.
Before the decline of the firm, Do Kwon and Terraform enjoyed a reputable status in the cryptocurrency landscape. The noticeable attention is due to how investors went big on the firm’s algorithmic stablecoin UST and its companion token, LUNA.
Meanwhile, on May 7, 2022, the algorithmic stablecoin lost its $1 peg, and plummeted rapidly, dropping to 35 cents in less than 48 hours. LUNA also reacted to the dip, dropping from $80 to a few cents some days later.
The plunge of the two tokens inflicted huge losses on investors as they wiped out more than $40 billion worth of investment. Consequently, the decline birthed a turbulent period in the crypto landscape, ushering in a bear market as investors briefly lost interest in digital assets.
However, regulators and investors held Do Kwon and Terraform Labs responsible for the collapse. The Terra boss eventually went into exile as prosecutors in the United States and South Korea launched a manhunt for him.
Read More: