• The SEC demands $5.3 billion from Do Kwon and Terraform Labs for fraud related to their now-defunct Terra blockchain
• The SEC requested that Terraform and Do Kwon pay $4.2 billion in disgorgement, $546 million in pre-judgment interest, a $420 million civil penalty for Terraform, and a $100 million civil penalty for Do Kwon
• Do Kwon argues against any form of injunctive relief against him, claiming there is no evidence that he will repeat the alleged conduct, and that disgorgement fines are unjustified as he did not receive any illegal profits independent of Terraform Labs’ earnings
The once-mighty Terra blockchain faces its biggest challenge yet as the SEC demands an unprecedented multi-billion dollar settlement from its founder Do Kwon. This case represents the largest potential crypto-related enforcement action to date, even exceeding the massive Binance settlement earlier this year. However, Kwon is pushing back against the penalties, arguing he owes only a fraction of the amount.
Background on the Terra Collapse
Terraform Labs (TFL) and Do Kwon are accused of defrauding investors by misleading them about the stability and profit potential of the Terra blockchain’s tokens LUNA and UST. In May 2022, the Terra ecosystem collapsed in spectacular fashion, with UST losing its peg to the US dollar and LUNA crashing from over $80 to near zero in just a few days. The implosion wiped out tens of billions in market value and caused major losses for investors.
Details of the SEC Lawsuit
In September 2022, the SEC sued TFL and Kwon, alleging they violated securities laws by misleading investors. On April 5, 2023, the court ruled in favor of the SEC on all counts. Now, the SEC is requesting TFL and Kwon pay $5.3 billion in penalties, including:
- $4.2 billion in disgorgement
- $546 million in pre-judgment interest
- A $420 million fine for TFL
- A $100 million fine for Kwon
This would be the largest crypto-related fine ever, surpassing the $43 billion Binance paid earlier this year.
Do Kwon’s Counterarguments
Kwon disputes the proposed penalties, arguing he should not face injunctive relief or personal disgorgement because he did not profit illegally from the scheme. His lawyers say Kwon should only pay a little over $800,000 in civil penalties.
The court will soon decide whether to grant the SEC’s request for penalties. Regardless of the outcome, the Terra saga highlights the real-world consequences when crypto projects allegedly mislead investors. This landmark case could shape crypto regulations for years to come.
