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US Reaches $4.47 Billion Settlement With Collapsed Terraform Labs

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Terraform Labs has reached a $4.47 billion civil settlement with the US Securities and Exchange Commission (SEC) after being found liable for defrauding cryptocurrency investors. 

A jury determined Terraform and its founder, Do Kwon, were responsible for misleading investors

This led to the catastrophic collapse of the TerraUSD and Luna tokens in 2022, which resulted in an estimated $40 billion loss and significantly impacted the entire crypto industry.

The proposed final judgment, filed in Manhattan federal court, awaits approval by US District Judge Jed Rakoff, who presided over the trial that concluded on April 5.

Terraform must pay $4.05 billion in disgorgement plus interest and a $420 million civil fine as part of the judgment. 

However, since Terraform filed for bankruptcy in January, most of this amount is unlikely to be paid. 

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"This proposed judgment is fair, reasonable, and in the public interest”

Instead, it will be treated as an unsecured claim in Terraform’s Chapter 11 liquidation process.

In addition to the judgment against Terraform, Do Kwon faces an $80 million civil fine. 

He has also agreed to be banned from participating in cryptocurrency transactions and must transfer $204.3 million to Terraform’s bankruptcy estate.

The SEC stated in a court filing that the judgment would maximize the return of funds to harmed investors and effectively put Terraform out of business. 

The agency said: "This proposed judgment is fair, reasonable, and in the public interest.”

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Both Terraform and Kwon consented to the judgment, though their lawyers have not yet responded to requests for comment. 

Kwon was found liable for fraud in the civil case concluded in Manhattan in early April.

The SEC accused Terraform and Kwon of deceiving investors about the stability of TerraUSD, which was designed to maintain a constant $1 price.

They were also accused of falsely claiming Terraform’s blockchain was used in a popular Korean mobile payment app. 

The collapse of TerraUSD in May 2022, when it failed to maintain its peg to the dollar, also led to the downfall of the closely linked Luna token.

Do Kwon did not attend the trial. 

He has been detained in Montenegro since March 2023, and the US and South Korea are seeking his extradition to face criminal charges. 

Kwon has denied any wrongdoing.

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