SEC seeks $5.3 billion fine against Terraform Labs and Do Kwon

The agency is also seeking conduct-based and "compliance with the law" injunctions.

The U.S. Securities and Exchange Commission (SEC) wants to fine Terraform Labs and its former CEO Do Kwon nearly $5.3 billion for violations of U.S. securities laws and fraud charges.

The agency detailed its requested fine in an April 19 legal filing. The SEC is primarily seeking $4.2 billion in disgorgement and $545.7 million in prejudgment interest.

The purpose of the illegally obtained proceeds is to force Terraform Labs and Kwon to return the unfair benefits they obtained between June 2021 and May 2022 through the following channels: first, selling tokens to institutional investors; second, through their cooperation with Genesis Asia Luna Foundation Guard contracts signed by Pacific for sales; third, sales on cryptocurrency exchanges.

Regulators are also seeking civil penalties, including $420 million against Terraform Labs and $100 million against Kwon.

The SEC said that while each civil penalty represented only a small portion of the defendants' ill-gotten gains, it served as a punishment and a deterrent.

Additional restrictions

The SEC also requested non-monetary remedies, including a "comply with the law" injunction preventing violations of the Securities Act of 1933 and the Exchange Act of 1934.

Additionally, the regulator intends to impose a conduct-based injunction preventing the defendants from engaging in the purchase, offer or sale of crypto-asset securities, including but not limited to Terra-related tokens such as UST, MIR, LUNA, wLUNA and LUNA 2.0.

It is also intended to prevent defendants from “inducing” others to enter into such transactions.

Additionally, it is intended to prevent Terraform Labs from filing for bankruptcy, which would exempt it from monetary remedies. The company filed for Chapter 11 bankruptcy protection in January.

The agency also intends to permanently bar Kwon from serving as an officer or director of a public company and force him to provide sworn accounting statements.

Terraform and Kwon’s response

The defendants responded to the proposed remedies in relevant documents.

First, Terraform Labs’ legal team pointed out that when the court takes remedial measures, it can only be based on those token sales that have been confirmed to have occurred in the United States. They claim that much of the conduct and sales actually took place outside the United States, a point that has not been adequately addressed in court proceedings.

Terraform Labs' legal team also maintains that the Securities and Exchange Commission (SEC) is not entitled to seek the return of ill-gotten gains due to a lack of monetary damages or "actual losses."

Kwon and his legal representatives also asserted no monetary damages and denied the existence of evidence that Kwon independently obtained illegal gains from Terraform Labs. The relevant filing contents are as follows:

"Mr Kwon has no illegal profits to hand over."

Both sides argued that the maximum civil penalty should be lower than the amount sought by the SEC. According to one estimate, Terraform Labs' defense recommended a maximum civil penalty of $3.5 million, while Kwon's defense recommended a civil penalty of less than $1 million.

Both parties agreed the ban was unnecessary and suggested further breaches were unlikely given the current circumstances.

The SEC originally filed a lawsuit against Terraform in February 2023 Labs and Do Kwon filed a lawsuit alleging. The trial began in March, and the court found both parties responsible for the fraud in April.

The above is the detailed content of SEC seeks $5.3 billion fine against Terraform Labs and Do Kwon. For more information, please follow other related articles on the PHP Chinese website!