The US District Court for the Southern District of New York has issued a final judgment against Terraform Labs and its co-founder Do Kwon, in the high-profile case filed by the Securities and Exchange Commission (SEC).
The ruling finds the defendants guilty of multiple securities law violations and imposes stringent penalties and restrictions on their future activities. The penalties include total fines amounting to roughly $4.5 billion.
According to the June 12 court filing, the sum includes $3.6 billion in disgorgement, $467 million in prejudgment interest, and $420 million in civil penalties.
Kwon is jointly and severally liable for $110.0 million of the above disgorgement and $14.3 prejudgment interest amounts.
Additionally, Kwon must transfer various assets, including ownership interests in PYTH tokens and other holdings, to the Terraform bankruptcy estate. These assets will be used to satisfy the monetary penalties and are to be distributed to harmed investors through a liquidating trust.
The order allows Terraform Labs to treat the amount due as an unsecured claim in its bankruptcy case, meaning that the SEC will receive the funds through a distribution when Terraform Labs’ Chapter 11 plan becomes effective and based on the distribution priorities.
The SEC is empowered to enforce the court’s judgment using all authorized collection procedures, including civil contempt if Kwon fails to comply with the transfer orders within 30 days of the judgment.
Kwon must also pay $204.3 million in remedies separate from his liability in Terraform Labs’ payments, including $110 million in disgorgement, prejudgment interest of $14.3 million, and an additional $80 million in civil penalties.
Ban on most activity
The order also bars Terraform Labs and Kwon from violating anti-fraud provisions under Section 10(b) of the Exchange Act and Section 17(a) of the Securities Act.
Furthermore, it permanently bars Terraform Labs and Kwon from transacting in unregistered securities, transacting crypto asset securities, or inducing others to transact in crypto asset securities, among other related restrictions.
The restrictions allow Terraform to perform certain transactions related to its bankruptcy case. The company can dispose of crypto in its bankruptcy estate with court approval, must destroy wallet keys and burn tokens as required. It can also allow third parties to withdraw, unstake, and unwind positions on its platforms.
The order also permanently bars Kwon from acting as an officer or director of any issuer with a registered class of securities or reporting obligations.
The SEC began its case against Terraform Labs and Kwon in February 2023, alleging that the firm had defrauded crypto investors, including through its now-collapsed Terra USD (UST) stablecoin. Courts found the defendants liable for fraud in April of this year.
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