SEC Seeks Massive Billions in Sanctions for Terraform Labs and Do Kwon's Crypto Fraud

In a civil case against Terraform Labs and Do Kwon, the SEC seeks approximately $5.2 billion in disgorgement and penalties for alleged fraud related to TerraUSD and Luna. The SEC proposes barring Kwon from industry leadership roles and imposing injunctions on Terraform to curb similar misconduct. Terraform and Kwon have suggested lower civil penalties, with Kwon's proposal amounting to $800,000. The court is yet to rule on the proposed remedies.

SEC Seeks Billions in Sanctions Against Terraform Labs and Do Kwon for Crypto Fraud

New York, NY (April 19, 2023) - The United States Securities and Exchange Commission (SEC) has filed a motion requesting substantial disgorgement and civil penalties totaling billions of dollars against Terraform Labs and its co-founder, Do Kwon, following a jury verdict finding them liable for defrauding investors in a landmark crypto case.

In a comprehensive filing submitted to the U.S. District Court for the Southern District of New York, the SEC seeks approximately $4.7 billion in disgorgement and prejudgment interest, as well as a combined $520 million in civil penalties against Terraform and Kwon. The specific amounts include $420 million from Terraform and $100 million from Kwon.

This significant financial judgment comes after a civil trial in which the jury unanimously concluded that Terraform and Kwon engaged in deceptive and fraudulent conduct related to the offering and sale of the TerraUSD (UST), Luna (LUNA), and wrapped Luna (wLUNA) crypto assets.

In its filing, the SEC details extensive evidence presented during the trial, highlighting the defendants' misrepresentations about the stability and value of UST and their failure to disclose material information to investors. The agency argues that these actions constitute clear violations of federal securities laws.

Beyond the monetary sanctions, the SEC proposes imposing severe restrictions on Kwon and Terraform's future activities. The commission seeks to permanently enjoin Kwon from serving as an officer or director of any securities issuer and requires him to provide complete details of his accounts and assets.

Terraform, if the motion is approved, would be subject to a "conduct-based injunction" prohibiting the company from engaging in similar fraudulent practices that led to the massive fraud. The proposed remedies and civil judgment are subject to the court's approval.

"The defendants have shown no remorse for their actions, and it is clear that they pose a significant risk of continuing to engage in violations," the SEC filing states. "The court must send a clear message that this type of brazen misconduct and the defendants' attempts to justify their behavior will not be tolerated."

The SEC's aggressive pursuit of sanctions reflects the seriousness with which the agency views the Terraform case and its determination to hold accountable those responsible for defrauding investors.

The trial proceeded without Kwon's presence. Kwon, who was arrested in Montenegro in March 2023 for using falsified travel documents, remains embroiled in legal proceedings in that country. The question of his extradition to either the U.S. or South Korea, where he also faces criminal charges, is still pending.

Terraform Labs, through a spokesperson, has indicated that it is carefully considering its options in response to the SEC's filing. Cointelegraph reached out to Terraform for comment on the latest developments, but a response was not received by the time of publication.

The SEC's actions are a significant step in the aftermath of the Terraform Labs scandal, which caused billions of dollars in losses for investors and raised concerns about the regulation of the crypto industry. The outcome of the civil case and the ongoing criminal proceedings against Kwon will continue to shape the legal landscape for cryptocurrencies and the expectations for companies operating in this space.