Will Do Kwon go to jail despite the recordbreaking 4 billion settlement in the English title

Authors: Luccy, Sky
On June 13th, according to Reuters, Terraform Labs has agreed to pay $4.47 billion in the case with the SEC, marking the largest financial penalty seen since Binance’s $4 billion penalty.
“Rendering this judgment will ensure the maximum return of funds to the affected investors and result in Terraform ceasing operations entirely,” the SEC stated in court documents. “Therefore, this proposed judgment is fair, reasonable, and in the public interest.” Terraform and Kwon have agreed to the judgment. Their lawyers did not immediately respond to requests for comment.
A six-month courtroom battle
Recalling the LUNA crash two years ago, the selling of $84 million of UST triggered a catastrophic event for Terra, the second-largest public chain ecosystem, evaporating nearly $40 billion in just two days.
Despite rumors of behind-the-scenes deals by institutions like Jump and Alameda to inject $2 billion to support UST after the death spiral, Binance also participated in the UST defense, forcibly setting a trading floor price for UST orders. However, the UST crash still occurred in full view, becoming the first large-scale Thai + Lehman event in the history of crypto development.
After the LUNA crash, the SEC charged the company and its former CEO Kwon Do-hyeong with securities fraud in February 2023, alleging that they orchestrated “billions of dollars in cryptocurrency securities fraud” by raising billions of dollars from investors through “offering and selling a series of interrelated cryptocurrency securities.”
Subsequently, news of the judgment against Terraform Labs and Do Kwon has been stirring the crypto community, with the case originally scheduled for trial in January 2024. On January 12th, Do Kwon expressed a desire to appear in court in person and therefore requested a postponement of his trial to mid-March 2024.
A $166 million “bribery fund”
On January 22nd, to respond to the SEC’s securities fraud lawsuit, Terraform Labs filed for Chapter 11 bankruptcy protection, stating that its assets and liabilities range from $100 million to $500 million, with 100 to 199 creditors.
On February 5th, Terraform Labs’ former CFO Han Chang-joon was extradited to South Korea. The Montenegrin police stated that criminal offenses related to financial investment services, investment, and capital market fraud “can result in life imprisonment” in South Korea. However, despite this, a former developer at Terraform Labs, Lee (alias), testified in a South Korean court that Do Kwon and Shin Hyun-seung still consider TerraUSD stablecoin as a potential payment option for investors.
Subsequently, Han Chang-joon was arrested by the Seoul Southern District Prosecutor’s Office on February 8th, charged with making profits of 53.6 billion Korean won (approximately $40 million) through fraudulent marketing of the Terra stablecoin, with total illegal gains of 462.9 billion Korean won with other accomplices.
Han was also accused of illegally recording about 100 million pieces of user electronic payment information on the Terra blockchain without permission and manipulating the market prices and trading volumes of Terra and Luna coins using “bot” programs. Additionally, he was accused of representing Terra-issued currencies as fixed prices, actually manipulating the market within a specific price range through large trades, violating capital market regulations on public fundraising and sales.
To prepare for the trial, Terraform Labs paid a prepayment of $166 million to the law firm Dentons at the end of February.
The SEC expressed strong dissatisfaction with this, alleging that the substantial prepayment was a “bribery fund,” believing that the funds could have been used to repay the company’s creditors. Terraform Labs paid $122 million from the senior payment guarantee account to Dentons, with the SEC stating that the law firm should not be allowed to represent Terraform Labs unless the remaining $81 million in the guarantee account is returned, and its expenses should be supervised by the bankruptcy court.
Facing the SEC’s opposition, Terraform Labs raised objections and applied to the bankruptcy court for permission to hire special litigation attorneys, requesting that $6.3 million in legal fees be allocated to employees and external partners facing litigation. Ultimately, according to court documents, approximately $3.25 million will be used to pay employees’ legal fees. On March 13th, the U.S. court allowed Terraform Labs to hire the law firm Dentons.
A $45.5 billion sky-high fine
Unlike Binance, Terraform Labs’ settlement process was not “smooth,” as they disputed the amount of the fine with the SEC for several months.
After his arrest, Do Kwon has been detained in a Montenegrin prison and was tried in a Manhattan court on March 25th. A lawyer for the SEC told the jury in Manhattan that Terraform Labs and its founder Do Kwon repeatedly lied about the success of their cryptocurrency platform.
As their fraud charges against investors near the end, regulatory agencies are seeking financial civil penalties against Do Kwon and Terraform and have ordered them to be banned from the securities industry.
On April 6th, Terraform Labs and Do Kwon were found guilty in a civil fraud case in the U.S. District Court in Manhattan. A Terraform spokesperson expressed disappointment in the ruling and stated that the SEC had no authority to bring the case.
In a filing submitted to the U.S. District Court for the Southern District of New York on April 19th, the SEC requested Do Kwon and Terraform to pay approximately $4.7 billion in restitution and pre-judgment interest after the civil case ruling, as well as a total of $520 million in civil fines, with Terraform paying $420 million and Do Kwon paying $100 million.
Terraform suggested a maximum civil fine of $3.5 million, while Do Kwon proposed $800,000.
On May 1st, after the jury found Terraform Labs and co-founder Do Kwon responsible in a fraud case with the U.S. Securities and Exchange Commission (SEC), a federal judge ordered the parties to discuss compensation ranging from millions to billions of dollars.
In further compensation proposals, the SEC still sought a $52.2 billion fine, while Terraform’s legal team further reduced the compensation amount, suggesting a $10 million civil penalty without paying forfeiture profits.
On May 30th, Terraform Labs and Do Kwon reached a preliminary “principled” settlement with the SEC on the fraud case. The final total judgment amount reached $45.5 billion, with Terraform agreeing to pay a $44.7 billion civil fine.
Will Do Kwon still go to jail?
A fine of over $40 billion is rare in the crypto world, with only Binance’s $4 billion comparable.
On November 21st last year, U.S. regulators launched a formal attack on Binance again, with the Department of Justice imposing a fine of over $40 billion as part of a proposed resolution after years of investigation. Meanwhile, CZ was also sentenced to four months in prison.
Not only CZ, but the founders who once stirred the crypto world are also facing challenges. While SBF’s 25-year prison sentence may be warranted, there is still controversy over the guilt of the Tornado Cash founder, and even Vitalik has provided legal aid donations.
Terraform’s judgment includes $40.5 billion in restitution and interest, as well as a $4.2 billion civil fine. Since Terraform filed for bankruptcy in January, most of the funds may not be paid. Instead, they will be treated as unsecured claims in the Chapter 11 bankruptcy case, as Terraform undergoes liquidation.
Currently, information about the criminal judgment against Do Kwon is still unknown, as he faces an $80 million civil fine and a ban on conducting crypto transactions, with $204.3 million to be transferred to Terraform’s bankruptcy assets.
It should be emphasized that in addition to the SEC’s civil lawsuit, Do Kwon currently faces criminal charges in South Korea and the United States, with the battle between the two countries still ongoing.
Initially, Do Kwon was ruled to be extradited to the U.S. for trial in February, but in March, the appeals court overturned the decision in favor of extradition to South Korea. Subsequently, the Montenegrin Prosecutor’s Office requested the Supreme Court to overturn the ruling and seek to extradite Do Kwon to the U.S., where he is currently awaiting a decision on extradition.
The bankruptcy application by Terraform Labs was intended to allow the company to continue executing its business plan in the legal proceedings against the securities fraud case brought by the SEC. However, today, according to The Block, Terraform Labs plans to sell its projects in the Terra ecosystem, including Pulsar Finance, Station Wallet, and Enterprise DAO. Terraform Labs CEO Chris Amani has requested the community to take over, as the company plans to dissolve its operations.
“TFL has always intended to dissolve at some point, and that time is now,” Chris Amani said, marking the end of Terraform Labs. “We will completely cease operations.” BlockBeats will continue to monitor the developments of Terraform Labs and Do Kwon.
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