The U.S. court issued a final verdict against Terraform Labs, and Do Kwon was fined a whopping $4.5 billion

The U.S. District Court for the Southern District of New York issued a final judgment in the case against Terraform Labs and its co-founder Do Kwon, finding that the defendants violated multiple securities laws and imposed strict penalties and restrictions on their future activities.

The lawsuit, filed by the U.S. Securities and Exchange Commission (SEC), has attracted widespread attention.

Judgment

According to court filings on June 12, Terraform Labs and Do Kwon were fined a total of approximately $4.5 billion, including $3.6 billion in disgorgement, $467 million in prejudgment interest, and $420 million in civil penalties. Among them, Do Kwon is personally jointly and severally liable for US$110 million in illegal gains and US$14.3 million in prejudgment interest.

Additionally, Kwon was ordered to transfer various assets he held, including PYTH tokens, to Terraform’s bankruptcy estate, where they will be used to pay fines and distributed to victimized investors through a liquidation trust. It is reported that Terraform Labs is allowed to treat the due amount as an unsecured claim in the bankruptcy case, and when the Chapter 11 bankruptcy plan takes effect, the SEC will receive funds based on allocation priority.

Enforcement and Restrictions

If Kwon fails to comply with the transfer order within 30 days of the judgment, the SEC has the authority to take all authorized collection proceedings to enforce the court judgment, including taking civil contempt measures.

In addition to its payment liability to Terraform Labs, Kwon is required to pay $204.3 million in remediation costs, including an additional $80 million in civil penalties.

Activity Ban

The judgment also prohibits Terraform Labs and Kwon from violating the anti-fraud provisions under Section 10(b) of the Exchange Act and Section 17(a) of the Securities Act. At the same time, they are permanently prohibited from conducting unregistered securities transactions, trading in crypto-asset securities, or inducing others to trade in crypto-asset securities, as well as other related activities.

Despite these restrictions, Terraform Labs was allowed to perform certain transactions related to its bankruptcy case, including disposing of the cryptocurrencies in its bankruptcy estate with court approval, destroying wallet keys and destroying tokens as required. Companies can also allow third parties to withdraw, unstake and unwind positions on their platform.

Additionally, Kwon is permanently prohibited from serving as an officer or director of any issuer with registered classes of securities or reporting obligations.

Case background

SEC begins investigation into Terraform in February 2023 Labs and Kwon filed a lawsuit alleging they defrauded cryptocurrency investors through the now-defunct Terra USD (UST) stablecoin. And in April this year, the court ruled that the defendant was guilty of fraud.

Conclusion

This case has had a profound impact on the cryptocurrency industry, reminding market participants that they must comply with securities regulations, and also demonstrating the determination of regulatory agencies to protect the rights and interests of investors and maintain market order.

As the legal process progresses and the judgment is enforced, injured investors are expected to receive a certain degree of compensation, and the entire industry will learn from it and move towards a more transparent and standardized direction.

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