The Securities and Exchange Commission of the United States (SEC) has requested that a New York court sentence Terraform Labs and co-founder Do Kwon $5.3 billion for their part in the $40 billion collapse of the Terra ecosystem in 2022.
Earlier this month, a Manhattan jury determined that Terraform Labs and Kwon had deceived investors on the stability of their purportedly “algorithmic” native stablecoin, Terra USD (UST), and the applications for the Terra blockchain. As a result, the two parties were found liable on civil fraud counts.
In its motion for final judgment, submitted two weeks post-trial, the SEC seeks $4.74 billion in disgorgement and prejudgment interest from Terraform Labs and Kwon. Additionally, the regulator requests $420 million from Terraform Labs and $100 million from Kwon in civil penalties.
The SEC attempted to convince the court that Kwon and Terraform Labs earned “over $4 billion in ill-gotten gains (and likely much more) from their illegal conduct” in an accompanying memorandum of law.
Court documents show that between June 2021 and May 2022, investors purchased $2.3 billion worth of UST on various crypto asset trading platforms. Sales of LUNA and MIR to institutional investors totaled $65.2 million and $4.3 million, respectively. Sales of LUNA and UST through the Luna Foundation Guard (LFG) totaled $1.8 billion.
The fine figure, according to the SEC, was a “conservative” but “reasonable approximation” of Kwon’s and Terraform’s “ill-gotten gains.”
The SEC seeks fines and injunctions against Kwon and Terraform Labs, barring future securities violations and prohibiting any involvement with crypto asset securities. Additionally, Kwon faces an officer-and-director ban at SEC-reporting public companies.
The SEC deems these measures crucial for deterring future violations, citing defendants’ lack of remorse and ongoing risk. Particularly concerning was Terraform Labs’ CEO’s testimony about ongoing token sales, raising doubts about compliance.
The SEC criticized Amani’s testimony as an admission of likely repeat offenses, describing it as audacious. They highlighted Terraform’s distribution of a new token version, LUNA 2.0, to investors while continuing to spend millions from prior investments and engaging in further unregistered security distributions.
Also Read: Terra founder Do Kwon released from Jail
