US Court Issues Final Judgment Against Terraform Labs, Imposes $4.5 Billion in Fines

By: Eva Baxter

The US District Court for the Southern District of New York has issued a final judgment against Terraform Labs and its co-founder Do Kwon in a high-profile case filed by the Securities and Exchange Commission (SEC).

The ruling finds the defendants guilty of multiple securities law violations, imposing stringent penalties totalling roughly $4.5 billion. The penalties include $3.6 billion in disgorgement, $467 million in prejudgment interest, and $420 million in civil penalties. Kwon is personally liable for $110 million of the disgorgement and $14.3 million in prejudgment interest. Additionally, Kwon must transfer various assets, including PYTH tokens and other holdings, to the Terraform bankruptcy estate. These assets will be used to satisfy the monetary penalties and will be distributed to harmed investors through a liquidating trust.

The SEC is authorized to enforce the court’s judgment using all authorized collection procedures, including civil contempt if Kwon fails to comply within 30 days. Kwon is also ordered to pay an additional $204.3 million in remedies, adding to his personal liabilities.

Ban on Most Activity

The court's order permanently bars Terraform Labs and Kwon from engaging in most business activities related to securities or crypto assets. They are banned from violating anti-fraud provisions under Section 10(b) of the Exchange Act and Section 17(a) of the Securities Act, transacting in unregistered securities, transacting crypto asset securities, or inducing others to transact in crypto asset securities. However, Terraform can perform certain transactions to manage its bankruptcy estate, including disposing of crypto assets with court approval and burning tokens when necessary.

The restrictions also permanently bar Kwon from acting as an officer or director of any issuer with a class of securities registered or with reporting obligations.

The SEC initiated its case against Terraform Labs and Do Kwon in February 2023, following allegations that the firm had defrauded crypto investors, notably through its now-collapsed Terra USD (UST) stablecoin. Courts found the defendants liable for fraud in April 2023.