News
Terraform to pay $4.47 billion to settle SEC fraud case (1)
<-bsp-bb-link state="{"bbHref":"bbg://securities/1741983D%20SP%20Equity","_id":"00000190-0d9c-d5f2-a594-dfbc5a8d0001","_type":" 0000016b-944a-dc2b-ab6b-d57ba1cc0000"}">Terraform Labs Pte.-bsp-bb-link> will pay $4.47 billion to solve a <-bsp-bb-link state="{"bbHref":"bbg:/ /securities/13165Z%20US%20Equity","_id":"00000190-0d9c-d5f2-a594-dfbc5a8d0002","_type":"0000016b-944a-dc2b-ab6b-d57ba1cc0000"}">US Securities and Exchange Commission- bsp-bb-link> lawsuit over the company’s collapse in 2022, which wiped out $40 billion in investor assets and shook the cryptocurrency world.
The SEC asked a federal judge in New York on Wednesday to approve the deal. The agreement was reached later <-bsp-bb-link state="{"bbDocId":"SBHJ1XDWRGG0","_id":"00000190-0d9c-d5f2-a594-dfbc5a8f0001","_type":"0000016b-944a-dc2b -ab6b-d57ba1cc0000"}">a jury-bsp-bb-link> in April found Terrform and the co-founder <-bsp-person state="{"_id":"00000190-0d9c-d5f2-a594-dfbc5a8f0002", "_type":"00000160-6f41-dae1-adf0-6ff519590003"}">Do Kwon-bsp-person> responsible for fraud after a two-week civil trial. Kwon still faces criminal prosecution over the sale of the company’s UST stablecoin.
Terraform will pay about $3.59 billion plus interest and a $420 million penalty, while Kwon will pay $204.3 million, including $110 million in disgorgement, interest and an $80 million penalty, it showed a court declaration. Kwon will also be required to transfer at least $204.3 million to Terraform’s bankruptcy estate for distribution to investors and will be barred from serving as an officer or director of a public company, according to the agreement.
Before the settlement was reached, the SEC had asked US District Judge Jed Rakoff to impose a $5.3 billion fine, while Terraform argued that it should not have to pay because most of its stablecoins were sold overseas .
The resolution also requires Terraform to close its business “as soon as practicable” and to seek approval of a Chapter 11 liquidation plan in the event of bankruptcy that replaces the company’s directors, including the current CEO <-bsp-person state="{"_id ":"00000190-0d9c-d5f2-a594-dfbc5a930003","_type":"00000160-6f41-dae1-adf0-6ff519590003"}">Chris Amani-bsp-person>, and appoints a trustee or real estate representative to use his remaining assets to pay creditors and investors.
“The entry into force of this ruling would ensure the maximum return of funds to harmed investors and would put Terraform out of business forever,” the SEC said in a letter to Rakoff.
David Kornblau, an attorney for Terraform, declined to comment.
Jurors found Terraform and Kwon liable for fraud for falsely claiming that Chai, a popular Korean payment application, was using Terraform’s blockchain technology to make transactions. Jurors also found that investors were misled about the stability of the UST stablecoin, which Kwon and Terraform said was algorithmically pegged to the U.S. dollar.
Kwon, who owns 92% of Terraform, was arrested in Montenegro in 2023 and convicted there for attempting to travel using a fake passport. Since then, the disgraced former cryptocurrency tycoon has been embroiled in an institutional tug-of-war in Montenegro as officials battle whether he should be extradited to the United States or South Korea.
Read more: <-bsp-bb-link state="{"bbDocId":"S9ZKAYDWX2PT","_id":"00000190-0d9c-d5f2-a594-dfbc5a940001","_type":"0000016b-944a-dc2b-ab6b -d57ba1cc0000"}">Do Kwon could be extradited to the United States after the actions of the Montenegrin Supreme Court-bsp-bb-link>
The civil case is US v. Terraform Labs, 23-cv-01346, United States District Court, Southern District of New York (Manhattan).
(Updates with transaction details starting in third paragraph.)
To contact the reporters for this story:
Chris Dolmetsch in Manhattan Federal Court cdolmetsch@bloomberg.net;
Bob Van Voris in front of the federal courthouse in Manhattan rvanvoris@bloomberg.net
To contact the editors responsible for this story:
<-bsp-person state="{"_id":"00000190-0d9c-d5f2-a594-dfbc5a9d0000","_type":"00000160-6f41-dae1-adf0-6ff519590003"}">Misyrlena Egkolfopoulou-bsp-person> A megkolfopoul@bloomberg.net
Steve Stroth, Anthony Aarons
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