TERRAFORM Labs will pay US$4.47 billion to resolve a US Securities and Exchange Commission (SEC) lawsuit over the firm’s 2022 collapse, which wiped out US$40 billion in investor assets and shook the cryptocurrency world.
The SEC on Wednesday (Jun 12) asked a federal judge in New York to approve the settlement. The deal was reached after a jury in April found Terraform and co-founder Do Kwon liable for fraud following a two-week civil trial. Kwon still faces a criminal case over the sale of the firm’s UST stablecoin.
Terraform will pay about US$3.59 billion plus interest and a US$420 million penalty, while Kwon will pay US$204.3 million, including US$110 million in disgorgement, interest and an US$80 million penalty, a court filing showed. Kwon also must transfer at least US$204.3 million to the Terraform bankruptcy estate for distribution to investors and will be barred from serving as an officer or director of a public company, according to the settlement.
Before the deal was reached, the SEC had been asking US district judge Jed Rakoff to impose a fine of US$5.3 billion, while Terraform argued it should not have to pay because most of its stablecoins were sold overseas.
The resolution also requires Terraform to wind down its business “as soon as possible” and seek approval of a Chapter 11 liquidation plan in its bankruptcy case that replaces company directors, including current chief executive officer Chris Amani, and appoints a trustee or estate representative to use its remaining assets to pay creditors and investors.
“The entry of this judgment would ensure the maximal return of funds to harmed investors and put Terraform out of business for good,” the SEC said in a letter to Rakoff.
David Kornblau, a lawyer for Terraform, declined to comment.
GET BT IN YOUR INBOX DAILY
Start and end each day with the latest news stories and analyses delivered straight to your inbox.
Jurors found Terraform and Kwon liable for fraud for falsely claiming Chai, a popular Korean payment application, was using Terraform’s blockchain technology to make transactions. The jurors also found investors were misled about the stability of the UST stablecoin, which Kwon and Terraform claimed was algorithmically pegged to the US dollar.
Kwon, who owns 92 per cent of Terraform, was arrested in Montenegro in 2023 and convicted thereof attempting to travel using a fake passport. Since then, the disgraced former crypto mogul has been caught in an institutional tug-of-war in Montenegro while officials fight over whether he should be extradited to the US or South Korea. BLOOMBERG
