Terra Luna case: Do Kwon and his company find common ground with the SEC

Terraform Labs and its former CEO, Do Kwon, have agreed in principle to settle a fraud case with the U.S. Securities and Exchange Commission (SEC). The final terms of the settlement are expected to be submitted to the court for approval by mid-June.

A settlement to end a tumultuous saga

After the brutal crash of Terraform Labs, the SEC had accused the platform and its co-founder, Do Kwon of misleading investors by deceptively promoting and marketing crypto tokens, including algorithmic stablecoin TerraUSD (UST) and Terra-related tokens.

According to the stock exchange regulator, these digital assets had been offered without proper registration misleading investors as to their stability and potential returns.

Last February, Terraform and Kwon had been found liable for fraud in this civil case brought by the SEC. This Wednesday, May 29, 2024, during a conference call before Judge Jed Rakoff, attorneys for both parties announced that they had reached an agreement in principle ending months of bitter negotiations.

Substantial financial penalties in sight

The final terms of this agreement must now be finalized and submitted for court approval by June 12, 2024. If the settlement is approved, Terraform Labs and Do Kwon will have to pay heavy financial penalties.

The SEC calls for approximately $5.3 billion in restitution prejudgment interest and civil fines. For its part, Terraform Labs proposed a much lower penalty of one million dollars, but objected to the restitution of affiliated entities not directly involved in the case, such as the Luna Foundation Guard.

In addition to these financial penalties, the regulator also wants to prohibit Do Kwon hold management or administrative positions in companies issuing securities.

The SEC also requires the former CEO to disclose all of his financial accounts and assets, a request to which Kwon objected, citing his constitutional right not to incriminate himself.

The agreement in principle reached between Terraform Labs, Do Kwon and the SEC marks a decisive turning point in this fraud case that has shaken the crypto sector. If the terms of the settlement are approved by the court, it will put an end to a long legal battle and impose significant sanctions on Terraform Labs’ managers.