In a high-profile case brought by the US Securities and Exchange Commission (SEC), the Southern District Court of New York has issued a final judgment against Terraform Labs and its co-founder Do Kwon.
The judgment found the defendants guilty of multiple violations of securities laws and imposed severe penalties and restrictions on their future activities. The penalties include a total fine of approximately $4.5 billion.
According to court documents filed on June 12, the judgment amount includes a $3.6 billion fine, $467 million in pre-judgment interest, and $420 million in civil penalties.
Kwon is jointly liable for the aforementioned $1.1 billion fine and $14.3 million in estimated interest.
Additionally, Kwon must transfer various assets to Terraform’s bankruptcy estate, including ownership rights to PYTH tokens and other assets. These assets will be used to pay the fines and distributed to harmed investors through a liquidating trust.
The order allows Terraform Labs to treat the amounts owed as unsecured claims in its bankruptcy case, meaning the SEC will receive these funds according to the distribution priority once Terraform Labs’ bankruptcy protection plan becomes effective.
The SEC has the authority to enforce the court judgment using all authorized collection procedures, including the right to exercise civil contempt court powers if Kwon fails to comply with the turnover order within 30 days of the judgment.
Kwon must also pay $204.3 million in disgorgement relief, separate from his payment obligations to Terraform Labs, which include the $1.1 billion fine, $14.3 million in pre-judgment interest, and an additional $80 million in civil penalties.
The order reveals that Terraform Labs and Kwon violated anti-fraud provisions of Section 10(b) of the Exchange Act and Section 17(a) of the Securities Act.
Furthermore, it permanently prohibits Terraform Labs and Kwon from trading unregistered securities, trading Crypto asset securities, or inducing others to trade Crypto asset securities, among other related restrictions.
These limitations allow Terraform to carry out certain transactions related to its bankruptcy case.
With court approval, the company can dispose of Crypto assets in its bankruptcy estate, and must destroy wallet keys and burn tokens as required.
Terraform Labs and Kwon are prohibited from conducting any trading activities on their platform, and are not allowed to permit third parties to withdraw, unlock, or close positions on their platform.
The order also permanently bars Kwon from serving as an executive or director of any issuer with registered securities or reporting obligations.
The SEC initiated the lawsuit against Terraform Labs and Kwon in February 2023, accusing the company of defrauding Crypto asset investors, including through its now-defunct Terra USD (UST) stablecoin. In April of this year, the court found the defendants liable for fraud.
