SEC reaches $4.47 billion settlement with now-bankrupt crypto firm Terraform Labs

By Jonathan Stempel

NEW YORK (Reuters) -Terraform Labs reached a $4.47 billion civil settlement with the U.S. Securities and Exchange Commission, after being found liable by a jury for defrauding cryptocurrency investors who lost an estimated $40 billion when the TerraUSD and Luna tokens collapsed in 2022.

A proposed final judgment covering Terraform and its founder Do Kwon was filed on Wednesday in Manhattan federal court. It requires approval by U.S. District Judge Jed Rakoff, who oversaw the trial, which ended on April 5.

Terraform's judgment includes $4.05 billion of disgorgement plus interest, and a $420 million civil fine.

Much is unlikely to be paid because Terraform filed for bankruptcy in January. It will instead be treated as an unsecured claim in the Chapter 11 case, where Terraform is liquidating.

The total judgment is $4.55 billion, including an $80 million civil fine for Kwon. He agreed to be banned from crypto transactions, and is required to transfer $204.3 million to Terraform's bankruptcy estate.

"Entry of this judgment would ensure the maximal return of funds to harmed investors and put Terraform out of business for good," the SEC said in a court filing. "Thus, this proposed judgment is fair, reasonable, and in the public interest."

Terraform and Kwon consented to the judgment. Their lawyers did not immediately respond to requests for comment.

The SEC accused Terraform and Kwon of deceiving investors about the stability of TerraUSD, which he designed to maintain a constant $1 price, and falsely claiming that Terraform's blockchain was used in a popular Korean mobile payment app.

TerraUSD and the closely-linked Luna, a more traditional token that Kwon also designed, collapsed in May 2022 when TerraUSD was unable to maintain its peg to the dollar.

Kwon did not attend the trial after having been detained in Montenegro since March 2023, with the United States and South Korea seeking his extradition to face criminal charges. He has denied wrongdoing.

(Reporting by Niket Nishant in Bengaluru and Jonathan Stempel in New York; Editing by Anil D'Silva and Chizu Nomiyama)