- TerraForm Labs & Do Kwon were found liable for deceptive practice.
- A NY court filing discloses a $4.7B fine for disgorgement.
- Terra’s defense team protests the SEC’s decision with a proposition.
The U.S. Securities and Exchange Commission (SEC) is calling for punitive actions against TerraForm Labs and its founder Do Kwon for playing a significant part in the 2022 Terra Luna fiasco. Back in May 2022, the Terra Luna ecosystem collapse resulted in the devastation of both Terra (LUNA) and the algorithmic stablecoin Terra USD (UST),
As Do Kwon and TerraForm Labs were both found liable in the customer defrauding case initiated by the SEC back in February 2023, Do Kwon didn’t get the chance to represent himself in the Manhattan hearing. At the time, the co-founder of Terra Luna blockchain was serving a 4-month jail sentence in Podgorica, Montenegro, for forging multiple documents, including a Costa Rican passport.
Terra’s Attorneys Protest The Massive Fine
The horrendous de-pegging of Terra USD (UST) resulted in over $40 billion being wiped out from the crypto markets, as well as setting off a domino effect on various crypto hedge funds, including Three Arrows Capital (3AC) and Celsius Network (CEL). While Do Kwon was on the run, 3AC’s co-founders Su Zhu and Kyle Davies also kept low profiles, only resurfacing online after the FTX crash later that year.
Meanwhile, TerraForm Labs’ and Do Kwon’s defense argues that the proposed monetary penalty is way too high, suggesting lowering the disgorgement penalty to $3.5 million, which is a far cry from the $4.7 billion suggested by the Securities and Exchange Commission (SEC). On top of that, Terra’s defense attorneys offered to reduce Do Kwon’s penalty to $800,000.
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Ultimately, if the “conservative & reasonable” SEC refrains from adjusting the penalty sum, this $5.3 billion disgorgement and civil fraud penalties will go down in crypto’s history books as the largest cryptocurrency-related punitive enforcement ever, surpassing Binance’s DoJ settlement by approximately $1 billion.
On the Flipside
- While TerraForm Labs’ defense sees the de-pegging of Terra USD (UST) as a smart contract breach, the SEC claims that TerraForm Labs artificially propped up the coin’s price.
- On top of that, the Securities and Exchange Commission (SEC) asserts that UST was never pegged to $1 and was in full control of the defendants.
Why This Matters
Terra Luna’s devastated investors are looking for answers after the 2022 crisis. This high-profile case is destined to set a precedent for cryptocurrency regulation in the future.
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