Terraform agrees to pay $4.47 billion in proposed judgment with the SEC

Terraform Labs agreed to pay $4.47 billion in fines after reaching a settlement with the U.S. Securities and Exchange Commission over its algorithmic stablecoin that fell dramatically in 2022.

The SEC filed a "proposed final consent judgment" on Wednesday, asking Judge Jed Rakoff of the U.S. District Court for the Southern District of New York to approve the plan.

"The proposed consent judgment both addresses the magnitude of this fraud by imposing significant remedial, punitive, and deterrent remedies, including a multi-billion dollar judgment against Defendants, and provides for meaningful and speedy recovery for investor victims that collectively lost billions when Defendants’ scheme collapsed," the SEC said in a court filing.

"If approved, the proposed judgment will send an unmistakable deterrent message to not only those who engage in brazen misconduct, but also to all those who seek to evade the requirements of the federal securities laws by crafting new standards of behavior for crypto assets that fall under the purview of the federal securities laws."

Terraform and its co-founder Do Kwon "reached a settlement in principle" with the SEC in late May after an oral argument had been canceled. Under the proposed judgment, Terraform would pay $3.58 billion in disgorgement, $420 million in a civil penalty and would block Kwon from becoming an officer or director of any public firm.

Kwon would also have to pay about $204 million toward a "Terraform bankruptcy estate for distribution to harmed investors," the SEC said.

The SEC charged Terraform and Kwon in February 2023 over the algorithmic stablecoin Terra USD (UST), which collapsed a year earlier. The agency said the firm defrauded and misled investors. Just a few months ago, both sides were arguing over fine amounts. Lawyers for Terraform and Kwon said fines should be closer to $1 million, while the SEC has proposed them to pay $5.3 billion.

A spokesperson for Terraform Labs declined to comment.

In April, a jury found that both Terraform and Kwon misled investors and were found liable for civil fraud. The main issues the jury had to delve into revolved around the SEC's claims that Kwon and Terraform violated federal securities laws by engaging in fraud connected to the buying and selling of Terraform securities. Judge Rakoff earlier granted summary judgment to the SEC in its claim that Terraform and Kwon offered and sold unregistered securities.