Terraform Labs agrees to pay $4.47 billion fine with SEC

Terraform Labs has reached a settlement in its lawsuit with the Securities and Exchange Commission (SEC), with the defunct crypto company agreeing to pay a $4.47 billion fine for its fraudulent activity related to the defunct blockchain of Earth

In a letter Wednesday to U.S. District Judge Jed Rakoff, the SEC sought approval of its “proposed final consent judgment” against Terraform and its famous co-founder, Do Kwon. The agency said the seismic penalty addresses the “magnitude of this fraud” while allowing for a “significant and speedy recovery” of the billions of dollars lost by the network’s investors. “To resolve this action, Terraform agrees to provide the SEC with all the relief it requested from the Court,” the letter said. That includes $3.6 billion in disgorgement, $466 million in prejudgment interest and a $420 million civil penalty, nearly equal to what the SEC had sought in April. Kwon himself has agreed to pay nearly all of the penalties the SEC sought, including $204 million in monetary relief that will go entirely to Terraform Labs’ bankruptcy estate to help aggrieved investors. The SEC charged Terraform and Kwon with securities fraud in 2023 related to the failed Terra blockchain, whose unstable design led to a spectacular $44 billion blowout of its LUNA and UST tokens. In early April, a jury found Terraform and Kwon guilty of misleading investors and willful fraud.

“Entry of this judgment would ensure the maximum return of funds to aggrieved investors and put Terraform permanently out of business,” the SEC concluded.

If accepted, this would mark the largest settlement in a crypto fraud case to date, surpassing even Binance’s $4.3 billion settlement with the Department of Justice in November. Still, some are skeptical that Terraform or Kwon have the money to pay the charges.

“Cashout of $4.47 million is impossible, even with a market of $40 million,” CryptoQuant CEO Ki Young Ju wrote. “Do and Terraform shouldn’t have that much money.”

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