Terraform Labs and Co-founder Do Kwon Face Final Verdict in SEC Case

According to PANews, the Southern District Court of New York has issued a final verdict in the high-profile case brought by the U.S. Securities and Exchange Commission (SEC) against Terraform Labs and its co-founder, Do Kwon. The verdict found the defendants guilty of multiple violations of securities laws and imposed severe penalties and restrictions on their future activities, including a total fine of approximately $4.5 billion. The court documents dated June 12 reveal that the penalty amount includes $3.6 billion in disgorgement, $467 million in prejudgment interest, and $420 million in civil penalties. Kwon is jointly responsible for $110 million of the disgorgement and $14.3 million in estimated interest. Furthermore, Kwon must transfer various assets to Terraform's bankruptcy estate, including ownership rights of PYTH tokens and other assets. These assets will be used to pay the fines and distributed to damaged investors through a liquidation trust. The order allows Terraform Labs to treat the payable amounts as unsecured claims in its bankruptcy case, meaning the SEC will receive these funds after the implementation of Terraform Labs' bankruptcy protection plan according to the distribution priority. The SEC has the right to use all authorized collection procedures to enforce the court's judgment, including exercising the right to civil contempt of court within 30 days after the judgment if Kwon fails to comply with the transfer order. Kwon must also pay $204.3 million in relief funds, separating it from Terraform Labs' payment obligations, which includes $110 million in disgorgement, $14.3 million in pre-judgment interest, and an additional $80 million in civil penalties. The order shows that Terraform Labs and Kwon violated the anti-fraud provisions of Section 10(b) of the Exchange Act and Section 17(a) of the Securities Act. In addition, 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 restrictions allow Terraform to carry out certain transactions related to its bankruptcy case. With court approval, the company can dispose of its 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 cannot allow third parties to withdraw, unlock, and close positions on their platform. The order also permanently prohibits Kwon from serving as an executive or director of any issuer with registered securities categories or reporting obligations. The SEC began suing 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.