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Terraform Labs and Do Kwon agree to pay a penalty of 4.47 billion dollars, resolving the civil lawsuit with the SEC

Terraform Labs, the company responsible for the implosion of the 40 billion UST stablecoin, has agreed along with its founder Do Kwon to pay a fine of 4.47 billion dollars to the SEC, thus putting an end to the civil lawsuit that had been ongoing since 2022.

As part of the agreement reached, Terraform will no longer be authorized to trade cryptocurrencies, and will have to cease its activities within 30 days.

Additionally, it will have to destroy all private keys of its own wallets, and those in possession of the Luna Foundation Guard (LFG), containing the crypto assets UST, MIR, LUNA, wLUNA, and LUNA 2.0, as a form of protection towards investors.

Let’s see everything in detail below.

Terraform Labs and Do Kwon sanctioned by the SEC for 4.47 billion dollars

Terraform Labs and the South Korean CEO Do Kwon are about to definitively patch up the civil lawsuit filed by the SEC after the collapse of the Terra/Luna ecosystem in November 2022 that wiped out 40 billion dollars from the cryptocurrency market.

The parties involved have found a proposal for a settlement agreement, officially filed on Wednesday, June 12, in which the full responsibility of the cryptographic company in the incident two years ago is established, with a record fine set at 4.47 billion dollars.

The amount includes fines for improper gains of approximately 3.6 billion dollars, a civil penalty of 420 million dollars, and prejudgment interest of nearly 467 million dollars. 

In the midst of the final acts of the Terra-Luna saga,  the SEC lawyers submitted a letter to the court urging the judge of the district court of the southern district of New York Jed Rakoff to oversee the case and definitively approve the agreement. 

Source: https://storage.courtlistener.com/recap/gov.uscourts.nysd.594150/gov.uscourts.nysd.594150.271.0.pdf

According to what was reported by Arkham Intelligence, Terraform Labs has only 74.5 million dollars available within its digital wallets, but the agreement stipulates that the fine will also have to be paid using the assets owned by Do Kwon and the Luna Foundation Guard.

An unconfirmed rumor from the X account β€œTerraNewsEN” reports that the two companies behind LUNA and the stablecoin UST have sold assets worth 20 billion dollars over the past few years, with a β€œcompensation amount” exceeding 4 billion dollars.

The statement in the civil case also indicates the entities involved to liquidate all holdings in the token Pyth Network (PYTH) to cover the cost of the disgorgement fines and prejudgment interest.

Apparently, therefore, the money to pay a stratospheric fine to the SEC is there, but it is not enough to reimburse the investors who were burned by the tragic affair.

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The agreement with the SEC then establishes the stop to any trading activity of cryptographic securities by Terraform Labs and Do Kwon, including all tokens in the Terra ecosystem.

Even if everything is approved by a judge, Terraform will have to permanently close its doors within 30 days of the ruling, and will have to burn all the private keys of the wallets in its possession containing assets such as UST, MIR, LUNA, wLUNA, and LUNA 2.0, in order to protect investors from further unregistered offers and sales of securities.

Regarding these new judicial developments, Chris Amani, CEO of Terraform Labs, has confirmed that a proposal will be initiated to burn all LUNA tokens not acquired by the cryptographic company and that the community will have to take control of the related blockchain, still operational two years after the collapse.

The lawyers of the SEC, with the release of the news that follows a record fine for fraud and market manipulation, even higher than the one settled by Binance with the CFTC, commented as follows:

β€œIf approved, the proposed sentence will send an unmistakable deterrent message not only to those who commit blatant misconduct, but also to all those who seek to evade the requirements of federal securities laws by devising new standards of behavior for crypto activities that fall within the scope of federal securities laws.” 

Do Kwon responsible for 200 million dollars: the former CEO is still detained in Montenegro

The resolution of the civil case with the SEC with the agreement of a fine of 4.47 billion dollars to Terraform Labs, includes within it the responsibility of CEO Do Kwon for an amount equal to 204 million dollars, of which 110 million dollars in penalties for undue gain, 80 million dollars in civil penalties, and about 14.3 million dollars in fines with pre-judgment interest.

This is one of the heftiest fines ever recorded within the landscape of CEOs of companies in the crypto sector, which certainly sends a strong message to all those who will again want to carry out fraudulent activities and criminal operations to the detriment of US investors.

The statement of transaction establishes the next immediate and short-term steps:

β€œThe payment of monetary remedies against Kwon will be considered satisfied, provided that all transfers by Kwon to the SEC and the bankruptcy estate of Terraform in the event of bankruptcy do not amount to less than $204,320,196, excluding the value of any Terraform crypto asset transferred to the bankruptcy bank of the Terraform estate, only if and until Kwon completes: (1) the transfer to an escrow account agreed upon by Kwon and the Commission staff of $4,700,000 within 30 days of the final judgment.”

Source: https://storage.courtlistener.com/recap/gov.uscourts.nysd.594150/gov.uscourts.nysd.594150.271.0.pdf

In the meantime, the fate of Do Kwon remains uncertain, with the South Korean still incarcerated in Montenegro, awaiting a final sentence for his release in his native country or his extradition to the USA.

At the moment, the High Court of Montenegro is still trying to determine whether or not to extradite the founder of Terraform to face the charges.

The lawyers of the founder of Terraform have tried to protect their client by arguing that improper procedures were implemented in the lower courts, which have contaminated the judicial proceedings in the numerous appeals filed.

We remember how in April a jury in New York found Kwon and Terraform Labs responsible for civil fraud charges brought against them by the SEC in connection with the $40 billion ecosystem implosion.

Alessandro Adami
Alessandro Adami
Graduated in "Information, Media and Advertising", for over 4 years interested in the cryptocurrency and blockchain space. Co-Founder of Tokenparty, community active in spreading crypto-enthusiasm. Co-founder of Legal Hackers Civitanova marche. Information technology consultant. Ethereum Fan Boy and supporter of Chainlink oracles, strongly believes that smart contracts will be central in the development of society.
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