US settles for $4.47bn with now bankrupt crypto firm Terraform Labs | Cryptocurrencies

Terraform Labs reached a $4.47bn civil settlement with the US Securities and Exchange Commission, after being found liable by a jury for defrauding cryptocurrency investors who lost an estimated $40bn when the TerraUSD and Luna tokens collapsed in 2022, leading to a disastrous downturn that affected the entire crypto industry.

A proposed final judgment covering Terraform and its founder Do Kwon was filed on Wednesday in Manhattan federal court. It requires approval by the US district judge Jed Rakoff, who oversaw the trial, which ended on 5 April.

Terraform’s judgment includes $4.05bn of disgorgement plus interest and a $420m civil fine. Much of the sum is unlikely to be paid because Terraform filed for bankruptcy in January. It will instead be treated as an unsecured claim in the Chapter 11 case, where Terraform is liquidating.

The total judgment is $4.55bn, including an $80m civil fine for Kwon. He agreed to be banned from crypto transactions and is required to transfer $204.3m to Terraform’s bankruptcy estate.

“Entry of this judgment would ensure the maximal return of funds to harmed investors and put Terraform out of business for good,” the SEC said in a court filing. “Thus, this proposed judgment is fair, reasonable and in the public interest.”

Terraform and Kwon consented to the judgment. Their lawyers did not immediately respond to requests for comment. Kwon was found liable for fraud in a civil case in Manhattan in early April.

The SEC accused Terraform and Kwon of deceiving investors about the stability of TerraUSD, which he designed to maintain a constant $1 price, and falsely claiming that Terraform’s blockchain was used in a popular Korean mobile payment app.

TerraUSD and the closely linked Luna, a more traditional token that Kwon also designed, collapsed in May 2022 when TerraUSD was unable to maintain its peg to the dollar.

Kwon did not attend the trial after having been detained in Montenegro since March 2023, with the US and South Korea seeking his extradition to face criminal charges. He has denied wrongdoing.