Terraform Agrees To Pay Almost $4.5B To Settle With SEC

Terraform Labs, the company behind failed TerraUSD and Luna cryptocurrencies, has agreed to pay nearly $4.5 billion to settle a lawsuit filed by the U.S. Securities and Exchange Commission (SEC), an SEC filing seeking a court approval for the agreement showed Wednesday.

TerraUSD was an algorithmic stablecoin that needed another cryptocurrency Luna to maintain is 1:1 peg to the U.S. dollar. Both cryptocurrencies failed when that peg broke in May 2022, and investors lost an estimated $40 billion dollars.

The SEC sued Terraform and its former CEO Do Kwon last February for fraud, adding that the company misled investors with promises of 20% annual returns via a decentralized finance app known as Anchor Protocol.

What’s in the $4.5B Settlement?

The settlement includes approximately $3.5 billion in disgorgement, over $460 million in prejudgment interest, and $420 million as a civil penalty.

As part of the settlement, Kwon will also personally contribute just over $200 million to the Terraform bankruptcy estate. Additionally, Kwon is barred from serving as an officer or director of a public company.

Court filings show that Terra and the SEC came to an agreement on the settlement terms ahead of a May 29 hearing, and were asked to submit them before the court by June 12 for approval.

Terraform Labs declared bankruptcy earlier this year, prior to its trial with the SEC. The proposed consent judgment is aimed at imposing significant financial remedies and ensuring a swift recovery for the investors who lost billions when Terraform’s crypto scheme collapsed.

The SEC emphasized that these penalties are within statutory limits and serve as a deterrent to others contemplating similar fraudulent activities.

Following a brief trial earlier this year, Terraform and Kwon were found guilty of defrauding investors.