- Proposed penalties include $4.74 billion in disgorgement and $520 million in civil penalties split between Terraform and Kwon.
- SEC actions include bans on Kwon and Terraform from future crypto securities dealings and executive roles at public companies.
The SEC has formally requested that a New York court require Terraform Labs and its co-founder Do Kwon to pay $5.3 billion in fines. This request comes in the wake of the $40 billion collapse of the Terra ecosystem in 2022.
According to the SEC, the proposed fine is a calculated estimate of profits improperly gained by Terraform and Kwon through their fraudulent activities.
Following a jury verdict in Manhattan earlier this month, Terraform Labs and Kwon were deemed liable for civil fraud charges. They were found to have deceived investors about the stability of Terra USD (UST), an algorithmic stablecoin, and the utility of the Terra blockchain.
Subsequent to this finding, has recommended penalties totaling $4.74 billion in disgorgement and prejudgment interest, with an additional $520 million in civil penalties. These penalties are broken down into $420 million from Terraform Labs and $100 million from Kwon.
Transaction records reveal that sales of LUNA and MIR tokens to institutional investors brought in $69.5 million. Additionally, $1.8 billion was transacted through the Luna Foundation Guard (LFG), and UST purchases on various cryptocurrency platforms totaled $2.3 billion from June 2021 to May 2022.
The SEC is also seeking preventative measures to stop further violations by Kwon and Terraform Labs, As we have pointed out in ETHNews, including bans from trading any crypto asset securities and from Kwon holding any executive or director roles at SEC-reporting public companies.
This push follows testimony from Terraform’s current CEO, Chris Amani, indicating ongoing token sales, which the SEC cites as evidence of potential repeat offenses.
In defense, Terraform Labs has contended that only a civil penalty should be imposed for violations proven to occur in the U.S., citing its current bankruptcy status with assets totaling about $150 million.
Kwon’s attorneys argue against any injunctive relief, stating that Kwon, who faces pending criminal charges and is not currently employed, has not retained any illegal profits.
Kwon remains in detention in Montenegro following his arrest for using forged travel documents. The governments of the U.S. and South Korea are both seeking his extradition to face further charges related to the collapse of Terra.
