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Terraform Labs and Do Kwon Settle with SEC Over TerraUSD Collapse

2 mins
Updated by Daria Krasnova
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In Brief

  • Terraform Labs and founder Do Kwon reached a tentative settlement with the SEC over 2022 TerraUSD collapse.
  • The SEC accused them of misleading investors about TerraUSD’s stability and its blockchain's usage claims.
  • The SEC seeks substantial fines and bans; Kwon faces extradition and criminal charges in the US and South Korea.
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Terraform Labs and its founder, Do Kwon, have reached a tentative settlement with the U.S. Securities and Exchange Commission (SEC).

The SEC accused them of misleading cryptocurrency investors before the collapse of the stablecoin TerraUSD in 2022.

Do Kwon Agree to Settle SEC Civil Fraud Case

The settlement details remain undisclosed. In April, a jury found Kwon and Terraform Labs liable on civil fraud charges. The SEC alleged that in 2021, they misled investors about TerraUSD’s stability and falsely claimed Terraform’s blockchain was used in a popular Korean mobile payment app.

US District Judge Jed Rakoff in Manhattan has asked both parties to file papers supporting the settlement by June 12. Representatives from the SEC and the defendants declined to comment.

The collapse of TerraUSD and the related token Luna disrupted cryptocurrency markets in May 2022. Investors in the two cryptocurrencies lost more than $40 billion. The SEC asked Judge Rakoff to make Kwon and Terraform Labs relinquish $5.3 billion from stablecoin sales. Additionally, the SEC sought a $420 million fine for the company and a $100 million fine for Kwon. They also demanded a ban on dealing in “crypto asset securities.”

Read more: Top Crypto Bankruptcies: What You Need To Know

Kwon and Terraform Labs argued for significantly lower penalties, proposing maximum fines of $3.5 million for the company and less than $1 million for Kwon. Facing related criminal charges in both the US and South Korea, Kwon has denied any wrongdoing. Since his arrest in Montenegro in March 2023, he has awaited extradition, with Montenegrin authorities deliberating whether to send him to the US or South Korea.

The crypto community has mixed reactions to the settlement. Some question how Terraform Labs plans to return the money. The news has also influenced market movements: initially, LUNA gained over 22%, but it then plummeted, facing a 14% drop in the past 24 hours.

Read more: Terra (LUNA) Price Prediction 2024/2025/2030

The agreement between Terraform Labs, Do Kwon, and the SEC is a big deal for the cryptocurrency market. As legal issues continue, everyone in the industry is paying attention because the outcomes could set crucial precedents. Terraform Labs and its founder will finalize and submit the settlement terms by mid-June.

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Shota Oba
After interning at a domestic blockchain media company while enrolled at a university in international relations, he worked as an intern trainee at two foreign crypto asset exchanges. Currently, as a journalist, he focuses on the Japanese crypto asset market, both technical and fundamental analysis. He has been trading crypto assets since 2021 and is interested in economic and social affairs.
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