SEC Seeks Federal Judge’s Approval of Settlement With Terraform Labs

The Securities and Exchange Commission reportedly asked a federal judge Wednesday (June 12) to approve a settlement with Terraform Labs.

The deal would resolve an SEC fraud case involving the cryptocurrency firm’s 2022 collapse that eliminated $40 billion in investor assets, Bloomberg reported Wednesday (June 12).

Under the proposed settlement, Terraform would pay $3.59 billion plus interest and a $420 million penalty; co-founder Do Kwon would pay $204.3 million; and Kwon would transfer at least $204.3 million to the Terraform bankruptcy estate for distribution to investors, according to the report.

In addition, Kwon would be barred from serving as an officer or director of a public company, and Terraform would wind down its business “as soon as possible,” with a trustee or estate representative to be appointed to use its remaining assets to pay creditors and investors, the report said.

Kwon still faces a criminal case focused on the sale of Terraform’s TerraUSD (UST) stablecoin, per the report.

The news comes about two months after a jury found Terraform Labs and Kwon liable for defrauding investors in crypto asset securities. The court found earlier that the company and Kwon unlawfully offered and sold crypto asset securities.

The case revolved around Terraform’s UST, which was designed to maintain a peg to the U.S. dollar and crashed in May 2022. Before losing its peg, UST had been the third-largest stablecoin by market cap.

When the jury’s decision in the case was announced April 5, SEC Division of Enforcement Director Gurbir S. Grewal said in a statement: “Terraform Labs and Kwon, its former CEO, deceived investors about the stability of the crypto asset security and so-called algorithmic stablecoin Terra USD, and they further misled investors about whether a popular payment application used Terraform’s blockchain to process and settle payments.”

On the same day, a spokesperson for Terraform Labs told PYMNTS in an email: “We are very disappointed with the verdict, which we do not believe is supported by the evidence.”

Terraform Labs filed for bankruptcy in January, listing assets and liabilities between $100 million and $500 million.