SEC suggests $5.3 billion fine for Do Kwon, Terraform Labs

Federal regulators are requesting Terraform Labs and its co-founder Do Kwon be fined $5.3 billion for defrauding investors, shortly after the two parties were found liable for a multi-billion-dollar fraud.

According to a court filing from April 19, the U.S. Securities and Exchange Commission requested Kwon and Terraform pay roughly $4.7 billion in disgorgement and prejudgment interest for their role in 2022’s Terra-Luna collapse. The SEC is also asking the court to order Terraform and Kwon to pay $420 million and $100 million, respectively, in civil penalties.

“The Court should send an unequivocal message that this sort of brazen misconduct, and Defendants’ misbegotten attempt to excuse their behavior by crafting new rules and standards of behavior for crypto markets in contravention of the federal securities laws [...] will not be tolerated,” the SEC said in a filing.

Kwon and his company were found liable for misleading customers about the safety of investing in its algorithmic stablecoin Terra USD (UST) and its underlying blockchain's utility, according to a New York civil court jury's verdict. Crypto investors purchased more than $2 billion worth of UST from exchanges and other trading venues alone, court documents show.

The SEC called its proposed fines “conservative” but “reasonable,” particularly given the vast wealth Kwon reaped from Terraform's ill-fated stablecoin, according to the filing. The company and its founder are contesting the amount of the civil penalties, with Terraform Labs arguing that a maximum fine of $3.5 million would be more appropriate and Kwon offering to pay just $800,000.