SEC Demands $5.2 Billion in Damages and Fines from Terraform Labs and Do Kwon Following Fraud Conviction

The Securities and Exchange Commission (SEC) has formally requested that Terraform Labs and its co-founder, Do Kwon, pay a staggering $5.2 billion. This demand follows a legal finding of fraud against them, as the fallout from the collapse of the Terra ecosystem continues to unravel.

On April 5, 2024, a New York court found Terraform Labs and its former CEO, Do Kwon, guilty of fraud, marking a significant development in one of the most high-profile cryptocurrency cases. The trial concluded with the jury deciding that Kwon and his company had knowingly provided false information about the operational algorithm of their stablecoin, UST, which had a critical role in the ecosystem's $40 billion collapse.

The SEC's claim includes both compensatory damages and fines totaling $4.7 billion for the damages caused. An additional $520 million is attributed to punitive fines, with $420 million being the responsibility of Terraform Labs and $100 million charged to Kwon.

Following the verdict, Terraform Labs and Do Kwon submitted counteroffers for the penalties, proposing to pay $3.5 million and $800,000 respectively, which are significantly lower than the amounts demanded by the SEC.

In addition to the monetary penalties, the SEC has proposed prohibitions aimed at preventing Kwon from managing any business related to securities issuers. The agency also seeks to enforce comprehensive disclosure of Kwon’s financial accounts and assets to ensure full transparency.

For Terraform Labs, the SEC has requested a conduct-based injunction, aimed at imposing restrictions on the company's operations to prevent a recurrence of the events leading to the collapse of its stablecoin, UST.

The SEC emphasized the importance of setting a clear legal precedent that will deter similar misconduct in the future. "The court must unequivocally demonstrate that such blatant transgressions and wrongful attempts by the defendants to justify their actions through the creation of new cryptocurrency market rules and standards, in violation of federal securities laws, will not be tolerated," stated the SEC in their filing.

This legal action coincides with recent developments in Montenegro, where the court has once again approved the extradition of Do Kwon, handing over the decision to the Ministry of Justice. This marks another step in the ongoing international legal challenges facing Kwon and his associates.

As the legal proceedings continue, the implications of this case are expected to resonate through the cryptocurrency industry, signaling a more stringent regulatory approach to oversight and compliance in the rapidly evolving digital asset market.