- The SEC has won a massive settlement against the company behind the collapsed stablecoin UST.
- The hefty fine has included Terraform being banned from buying and selling crypto altogether.
- How Terraform Labs will pay the massive penalty remains unclear, with the company having filed for bankruptcy.
In a landmark decision for the cryptocurrency industry, a U.S. District Court judge has approved a $4.5 billion settlement between the Securities and Exchange Commission (SEC) and Terraform Labs, along with its former CEO, Do Kwon. The settlement resolves a long-standing legal battle stemming from the 2022 collapse of the Terra ecosystem and subsequent market turmoil.
SEC Wins Big in Crypto Fraud Case
The May 2022 collapse of TerraUSD (UST), an algorithmic stablecoin developed by Terraform Labs, sent shockwaves through the crypto market. The domino effect triggered by UST’s de-pegging from the US dollar led to the downfall of major players like Three Arrows Capital and impacted other firms.
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The SEC, citing fraud by Terraform Labs and Do Kwon, stepped in to hold them accountable for the devastation caused to investors.
“This case affirms what court after court has said: The economic realities of a product — not the labels, the spin, or the hype — determine whether it is a security under the securities laws. Terraform and Do Kwon’s fraudulent activities caused devastating losses for investors, in some cases wiping out entire life savings,” stated SEC Chair Gary Gensler.
The settlement includes a permanent ban on Kwon and Terraform Labs from buying and selling crypto asset securities. The hefty $4.5 billion penalty comprises disgorgement (giving back illegally obtained profits), prejudgment interest, and civil penalties.
Can Terraform Labs Afford $4.5B SEC Fine?
This figure falls short of the SEC’s initial proposal of $5.3 billion but remains significantly higher than the $1 million Terraform Labs sought. Do Kwon, currently awaiting extradition in Montenegro on fraud charges, was not present at the trial.
Terraform Labs, navigating Chapter 11 bankruptcy with limited assets of approximately $150 million, faces uncertainty regarding how it will pay the substantial fines. This settlement marks a significant victory for the SEC, demonstrating its commitment to combating fraud in the burgeoning crypto industry.
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It aims to provide some compensation to victims of the Terra ecosystem collapse and serves as a stark warning to crypto firms: regulatory compliance is paramount in this fast-paced and often volatile market.
On the Flipside
- Terraform Labs’ bankruptcy situation casts doubt on their ability to pay the full penalty.
- This SEC settlement with Terraform Labs could be seen as a positive development for Ripple’s ongoing lawsuit with the SEC.
Why This Matters
This record-breaking settlement sets a strong precedent for the SEC’s authority in the crypto space. It reinforces regulatory scrutiny and highlights the potential consequences for companies failing to comply, potentially leading to stricter regulations and a more cautious market in the future.
If you’re interested in learning more about another ongoing lawsuit, check out this article. It delves into the upcoming verdict and the potential for an appeal in the Ripple vs. SEC case:
XRP Lawsuit Heats Up with Judge’s Ruling and Appeal in Focus
You might also be interested in this article about Ripple’s announcement of a new stablecoin, RLUSD, which will be available on both the XRPL and Ethereum blockchains:
Ripple’s RLUSD Stablecoin and EVM Sidechain Ignite XRP Buzz
