$4.5 Billion fine for Crypto Asset Securities Fraud

• Terraform Labs PTE, Ltd. and
• Do Kwon

The fine follows a unanimous jury verdict holding them liable for orchestrating a years-long fraud involving crypto asset securities that led to massive investor losses when the scheme unravelled.

A nine-day jury trial in April exposed the extent of the defendant’s lies to victims about

• The false use of the Terraform blockchain to settle transactions and
• The stability of their crypto-asset security [UST].

The SEC also offered evidence at trial showing that,

• In May 2022, after UST de-pegged from the U.S. dollar, the price of UST and Terraform’s other tokens plummeted to close to zero.
• This wiped out $40 billion in market value nearly overnight and caused devastating losses to countless investors, including numerous retail investors who believed the defendants’ lies and poured their life savings into Terraform’s ecosystem.

SEC Chair Gary Gensler SAID

• This case affirms what court after court has said: The economic realities of a product—not the labels, the spin, or the hype—determine whether it is a security under the securities laws,”
• Terraform and Do Kwon’s fraudulent activities caused devastating losses for investors, in some cases wiping out entire life savings.
• Their fraud serves as a reminder that, when firms fail to comply with the law, investors get hurt.
• Terraform and Kwon fought our efforts to investigate – taking a fight over investigative subpoenas all the way to the Supreme Court.
• Thankfully, with this settlement, the victims of their massive fraud will now get some justice.

Gurbir S. Grewal, Director of the SEC’s Division of Enforcement.

• Do Kwon and Terra orchestrated one of the largest securities frauds in U.S. history by, among other things, falsely claiming that they had achieved the Holy Grail of crypto: a non-illicit use case.
• As the jury found, that was a lie, as was their claim of creating an ‘algorithmic stablecoin.’
• In the end, all they succeeded in doing was lying to investors, wiping out tens of billions of dollars in market value, and creating a trail of victims,”
• Today’s multi-billion-dollar settlement not only holds them accountable and prioritises the return of hundreds of millions of dollars to harmed investors but also makes clear that, despite the vast resources that crypto asset defendants deploy against us, the dedicated staff of the Division of Enforcement will not stop until they achieve justice for the victims of these breathtaking frauds.”

KEY DETAILS

1. The SEC charged Terraform and Kwon in U.S. District Court for the Southern District of New York on February 16, 2023, with securities fraud and for offering and selling securities in unregistered transactions.
2. On December 28, 2023, the District Court found Terraform and Kwon liable for offering and selling crypto asset securities in unregistered transactions.
3. On January 21, 2024, Terraform filed a voluntary Chapter 11 petition in the U.S. Bankruptcy Court for the District of Delaware. On April 5, 2024, a jury unanimously found Terraform and Kwon liable for securities fraud after less than two hours of deliberation.
4. As part of the settlement, Terraform agreed to pay $3,586,875,883 in disgorgement, $466,952,423 in prejudgment interest, and a $420,000,000 civil penalty.
5. Terraform also agreed to stop selling its crypto asset securities, wind down its operations, replace two of its directors, and distribute its remaining assets to investor victims and creditors through a liquidation plan, subject to approval by the court in Terraform’s pending bankruptcy case.
6. Kwon agreed to pay $110,000,000 in disgorgement and $14,320,196 in prejudgment interest on a joint and several basis with Terraform, as well as an $80,000,000 civil penalty.
7. In addition, the defendants consented to the entry of a final judgment permanently enjoining them from violating the registration and fraud provisions they violated.

SOURCE

https://www.sec.gov/newsroom/press-releases/2024-73#:~:text=The%20Securities%20and%20Exchange%20Commission%20today%20announced%20that,to%20massive%20investor%20losses%20when%20the%20scheme%20unraveled