- Terraform Labs and its CEO, Do Kwon, are close to settling a fraud lawsuit with the SEC, with court approval pending by June 12, 2024.
- The lawsuit accuses Terraform and Kwon of misleading investors through unregistered sales of their crypto tokens.
- The SEC seeks a hefty penalty, while Kwon faces restrictions on his future roles in any securities-issuing entity.
Terraform Labs and its former CEO, Do Kwon, have moved closer to resolving a legal battle with the U.S. Securities and Exchange Commission (SEC). They reached an initial agreement to settle accusations of defrauding investors, with court filings indicating a full agreement is anticipated by June 12, 2024.
During a telephone conference before Judge Jed Rakoff on May 29, attorneys for both parties outlined their progress towards a settlement. The legal dispute stems from the SEC’s allegations that Terraform and Kwon engaged in the deceptive promotion and sale of cryptocurrency tokens, including the algorithmic stablecoin TerraUSD (UST) and other related tokens.
The SEC’s lawsuit highlighted that Terraform and Kwon operated without necessary registrations, purportedly misleading investors about the stability and potential returns of their crypto assets. These activities contributed to the collapse of Terraform Labs in May 2022, which exacerbated the downturn in the cryptocurrency markets and affected numerous firms and investors.
Penalties and Restrictions Proposed
In addition to financial repercussions, the SEC has proposed barring Kwon from serving as an officer or director of any entity that issues securities. They are also demanding full disclosure of his financial assets and accounts. Kwon, on the other hand, has resisted these demands, citing them as an infringement of his Fifth Amendment rights against self-incrimination.
Kwon’s legal troubles extend beyond the SEC lawsuit. He was arrested in March 2023 in Montenegro under charges of falsifying travel documents as he attempted to leave the country. Following his arrest, he was released on bail, and the U.S. is currently seeking his extradition.
As the June deadline approaches, both Terraform Labs and Do Kwon await the court’s final approval of their settlement, which could mark the end of a significant chapter in the saga of regulatory challenges facing the crypto industry. This resolution is expected to provide a clearer regulatory framework for crypto enterprises and their executives moving forward.
