The legal dispute between Terraform Labs and the Securities and Exchange Commission (SEC) of the United States has finally come to an end with Terraform Labs agreeing to pay $4.5 billion as a settlement.
This amount includes disgorgement fines of roughly $3.6 billion, a civil penalty of $420 million, and prejudgement interest of nearly $467 million.
The SEC has also found Do Kwon, the former CEO of Terraform Labs, guilty, and he should pay around $204,320,196 as a penalty. Moreover, the settlement agreement also bans Do Kwon and Terraform Labs from conducting any further cryptocurrency dealings in the future.
This settlement agreement is still in its proposal stage and will come into effect after the U.S. District Court Judge Jed Rakoff of the Southern District of New York (SDNY) approves this proposal.
The lawyers for the SEC welcomed this move. They said that this settlement agreement if approved, would be a strong message to all those who plan to engage in misconduct in the market. Terraform Labs has not yet commented on this development.
Do Kwon is still in custody in Montenegro and is awaiting his extradition to the United States for conducting the trials.
Some Insights about The Terraform-SEC Case
The Terraform Labs fraud was a massive attempt at misrepresentation of the crypto assets. Investors were coaxed into investing in the protocol’s stablecoins through false, unrealistic claims.
Terraform Labs
Terraform Labs is a transition to the new age of cryptocurrency-related activities. Its native coins let its users build and earn on the platform, and it will do the version of cloud and on-premises resources safely and efficiently.
The Terraform labs created this blockchain protocol and its native currencies. It started its functions in Seoul, South Korea in 2018.
Terraform Labs launched its stablecoins TerraUSD and LUNA shortly after its establishment. The market capitalization of these stablecoins dropped by almost $45 billion when they crashed in May 2022.
Securities and Exchange Commission
Securities and Exchange Commission (SEC) is the primary regulatory body of the United States that is responsible for overseeing the activities of the securities market in order to safeguard investors from any unpleasant developments.
It has established rules and regulations on the basis of which it promotes disclosure and sharing of market-related information, fair dealing, and protection against fraud.
The Case
The lawsuit between Terraform Labs and the SEC begins with the SEC finding that the proprietors of Terraform Labs orchestrated fraud by promoting its cryptocurrency as a stable token.
Terraform’s currencies were stablecoins pegged to the US Dollar and were believed to surpass all the volatility and instability of the market. In May 2022, Terraform’s stablecoins crashed in the market, causing a huge, overnight loss of about $40 billion.
As SEC chairperson Gary Gensler rightly said, many investors lost their lives in the fraud and this settlement will finally get justice done to the victims of this massive fraud.
The Jury found that Do Kwon and his company’s claim that they had invented an algorithmic stablecoin was false.
“Today’s multi-billion dollar settlement not only holds them accountable and prioritizes the return of hundreds of millions of dollars to harmed investors, but also makes clear that, despite the vast resources that crypto asset defendants deploy against us, the dedicated staff of the Division of Enforcement will not stop until they achieve justice for the victims of these breathtaking frauds.”Gurbir S. Grewal, Director of the SEC’s Division of Enforcement said.
The settlement amount levied from Terraform Labs and Do Kwon will be used to cover the losses incurred by the investors.
The Bottom Line
Terraform Labs is a classic example of massive fraud in the cryptocurrency world and reinstates the need for investors to take care before investing.
Investors should not be carried away by the pomp and glory of the market; they should make informed decisions to counter any major loss.
The case also reinstates the need for centralized authorities like the SEC to regulate the decentralized crypto market.
