SEC Proposes Mammoth $5.3B Fine for Terraform Labs, Do Kwon in Crypto Fraud

The SEC proposes a record-breaking $5.3 billion fine against Terraform Labs and its co-founder Do Kwon for defrauding investors through the sale of unregistered TerraUSD stablecoin and LUNA tokens. The fine, stemming from a two-week fraud trial, includes $4.2 billion in disgorgement, $1 billion in civil penalties, and $545 million in prejudgment interest. If imposed, it would surpass Binance's $4.3 billion settlement for anti-money laundering violations.

SEC Proposes Monumental $5.3 Billion Fine Against Terraform Labs and Do Kwon for Crypto Fraud

The United States Securities and Exchange Commission (SEC) has unveiled its intent to impose a staggering $5.3 billion fine upon Terraform Labs Pte. and its co-founder, Do Kwon, the mastermind behind the defunct TerraUSD (UST) stablecoin.

This proposed penalty stands as the most substantial ever levied in the annals of the cryptocurrency industry and follows an earlier finding of liability for fraud against Kwon and Terraform during a two-week trial held in New York in April.

According to the SEC's filing with the Southern District Court of New York, Kwon and Terraform amassed illicit gains exceeding $4 billion through unregistered sales of tokens, including LUNA and UST. UST, an algorithmic stablecoin designed to maintain a 1:1 peg with the US dollar, suffered a cataclysmic collapse in 2022, obliterating $40 billion in market value.

In its filing, the SEC emphasizes the necessity of sending an "unequivocal message" that such blatant misconduct will not be countenanced. The proposed fine comprises a $4.2 billion disgorgement penalty, $545 million in prejudgment interest, and civil penalties of $420 million for Terraform and $100 million for Kwon.

This hefty fine eclipses the $4.3 billion settlement paid by Binance in November 2023 to resolve charges of anti-money laundering violations and US sanctions breaches with the US Department of Justice, which itself constituted one of the largest corporate settlements in US history.

Attorneys representing Kwon and Terraform have contested the SEC's allegations, asserting that token sales occurred outside US borders and did not violate federal securities law.

Kwon, who was apprehended in Montenegro last year for attempting to flee with a forged passport, is currently awaiting extradition to either the US or his native South Korea. He faces criminal fraud charges in both jurisdictions.

The SEC has also requested that the court permanently prohibit Kwon, who holds a 92% stake in Terraform, from serving as an officer or director and has sought a comprehensive "sworn accounting" of his assets.

This monumental fine underscores the SEC's unwavering commitment to protecting investors from the perils of cryptocurrency-related fraud and signals a heightened level of regulatory scrutiny in this rapidly evolving industry.