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Terraform Labs & Do Kwon to settle in SEC fraud case



Terraform Labs and Do Kwon reach a preliminary settlement in the Securities and Exchange Commission (SEC) fraud case.

Terraform Labs and its co-founder Do Kwon have reached a preliminary agreement with the U.S. Securities and Exchange Commission (SEC) to settle civil fraud charges according to a Reuter report. These charges stem from the 2022 collapse of the stablecoin TerraUSD.

The settlement between Terraform Labs, Do Kwon, and the U.S. Securities and Exchange Commission (SEC) was announced on Thursday, May 30, 2024. This announcement came after a jury in April found Kwon and Terraform Labs guilty of civil fraud. However, details of the settlement are yet to be known.

The collapse of Terraform and the arrest of Do Kwon, the founder of Terraform Labs, were significant events in the cryptocurrency market. TerraUSD (UST) was an algorithmic stablecoin, meaning its value was linked to the value of Luna (LUNA). This design made it more vulnerable to market fluctuations and technical failures.

UST was deposited in the Terra-based borrowing and lending protocol, Anchor, which offered high interest rates of up to 20% APY. This attracted investors but also created unsustainable expectations and a high risk of a collapse which finally saw the downfall of the company.

Do Kwon, the founder of Terraform Labs, was arrested in Montenegro in March 2023. He was charged with fraud by US prosecutors and faced charges of securities fraud, wire fraud, commodities fraud, and conspiracy.

Both the US and South Korea sought Kwon’s extradition. Montenegro does not have extradition treaties with the US or South Korea, but Kwon’s attorneys advocated for extradition to South Korea in hopes of a lighter sentence.

A jury found Kwon and Terraform Labs liable for fraud, agreeing with the US Securities and Exchange Commission (SEC) that they misled investors before the collapse of the company’s namesake cryptocurrency.

Additionally, the SEC demanded $5.3 billion in alleged gains relinquishment and fines totaling $520 million. Kwon and Terraform argued for lower fines. Kwon, facing criminal charges in the U.S. and South Korea, denied wrongdoing.

The SEC accused Terraform Labs and Kwon of misleading investors about TerraUSD’s stability and falsely claiming Terraform’s blockchain was used in a popular Korean mobile payment app. Judge Rakoff requested supporting documents for settlement by June 12.  

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