With a fine of US$4.5 billion, the LUNA thunderstorm event comes to an end

‍ The U.S. District Court for the Southern District of New York issued a final judgment against Terraform Labs and its co-founder Do Kwon in a high-profile case brought by the U.S. Securities and Exchange Commission (SEC).

The judgment found the defendants guilty of multiple violations of securities laws and imposed severe penalties and restrictions on their future activities. The penalties include fines totaling approximately $4.5 billion.

According to court documents dated June 12, the verdict includes $3.6 billion in forfeitures, $467 million in withheld interest and $420 million in civil penalties.

Kwon is jointly and severally liable for the forfeiture of US$110 million and estimated interest of US$14.3 million.

In addition, Kwon must transfer various assets to the Terraform bankruptcy estate, including ownership interests in PYTH tokens and other assets. The assets will be used to pay penalties and distributed to harmed investors through a liquidating trust.

The order allows Terraform Labs to treat the amounts due as unsecured claims in its bankruptcy case, which means the SEC will receive these funds based on distribution priority after Terraform Labs' bankruptcy protection plan takes effect.

The SEC has the authority to use all authorized collection procedures to enforce court judgments, including the right to exercise civil contempt of court if Kwon fails to comply with the surrender order within 30 days of the judgment.

Kwon must also pay $204.3 million in relief funds to separate it from Terraform Labs’ payment obligations, including $110 million in forfeitures, $14.3 million in preclearance interest, and an additional $80 million in civil penalties.

The order reveals that Terraform Labs and Kwon violated the anti-fraud provisions of Section 10(b) of the Exchange Act and Section 17(a) of the Securities Act.

In addition, it permanently prohibits Terraform Labs and Kwon from trading unregistered securities, trading Crypto asset securities, or inducing others to trade Crypto asset securities, as well as other related restrictions.

The restrictions allow Terraform to execute certain transactions related to its bankruptcy case.

With court approval, the company can dispose of Crypto assets in its bankruptcy estate, and must destroy wallet keys and burn tokens as required.

Terraform Labs and Kwon will be prohibited from conducting any trading activities on their platforms, nor will they allow third parties to withdraw, unlock and close positions on their platforms.

The order also permanently prohibits Kwon from serving as an officer or director of any issuer with a registered security class or reporting obligation.

The SEC began a lawsuit against Terraform Labs and Kwon in February 2023, accusing the company of defrauding investors in crypto assets, including through its now-defunct Terra USD (UST) stablecoin. In April this year, the court found that the defendant should be held responsible for fraud.

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