Crypto startup Terraform Labs and its CEO, Do Kwon, are reportedly nearing a settlement agreement with the U.S. Securities and Exchange Commission (SEC) in a fraud case. Legal representatives revealed a tentative settlement during a recent phone conference with Judge Jed S. Rakoff, and the final terms of this accord should be sealed and ready for court review by June 12, 2024.
The trouble for Kwon and Terraform Labs began when the SEC charged them with defrauding investors. The case, which reached a verdict of liability in February, focused particularly on the company’s marketing and sale of the algorithmic stablecoin Terra USD (UST) along with its associated tokens. The SEC’s accusations stemmed from Terraform and Kwon offering these digital assets without the appropriate registration and falsely advertising them regarding their stability and investment potential.
The decline of Terraforms in May 2022 triggered a severe crypto market crash, negatively impacting multiple cryptocurrency companies and various investors. This suit’s repercussions could be harsh for Kwon and his company as the SEC is seeking a hefty fine of approximately $5.3 billion. Conversely, Terraform Labs has suggested a considerably lower penalty of $1 million and has vociferously argued against disgorgement, especially from related entities not explicitly named in the SEC suit, such as the Luna Foundation Guard.
Additionally, the SEC has proposed barring Kwon from serving as an officer or director in any entity issuing securities. The regulatory body has also insisted that Kwon fully disclose information regarding his financial holdings. Kwon has opposed this level of scrutiny, asserting that such a requirement would infringe upon his Fifth Amendment rights.
In another unfortunate turn of events for the tech entrepreneur, Kwon was arrested in Montenegro in March 2023 for falsifying travel documents. Following his release on bail, the U.S. is still seeking his extradition, with potential charges awaiting him in Montenegro.