Terraform Labs and its founder, Do Kwon, are in financial trouble after the SEC demanded $5.3 billion in fines following a civil case against them. The SEC is seeking nearly $4.7 billion in disgorgement and prejudgment interest from Kwon and Terraform Labs. Additionally, Kwon is required to forfeit $100 million of his own funds in civil penalties, while Terraform Labs must pay $420 million. The SEC has also requested the court to bar Kwon from operating as a securities officer and director of any securities issuer and issue an injunction against both Kwon and Terraform Labs.
The SEC’s motion comes after a two-week long trial that found Kwon liable for fraud following the collapse of his algorithmic stablecoin, TerraUSD, and its sister token, Luna, which led to a $40 billion crypto market crash. Kwon was not present at the trial as he was stuck in Montenegro after the country confiscated his passport for using fake travel documents to escape legal consequences related to the crypto crash. The SEC’s Director of Enforcement, Gurbir S. Grewal, highlighted the consequences of lack of registration and compliance in the crypto industry and emphasized the need for compliance in the markets.
The United States and South Korea are currently vying for Kwon’s extradition as he remains in legal battles for his company. Kwon’s legal team is fighting for him to be sent back to his home country in hopes of receiving a lighter sentence. Meanwhile, the SEC is facing backlash from the crypto community for its regulation-by-enforcement approach. Earlier, SEC officials Michael Welsh and Joseph Watkins resigned amidst criticism and legal repercussions over their handling of the DEBT Box case. SEC Commissioner Hester Pierce has also criticized the agency’s regulatory tactics, claiming they are driving people away.
It is unclear how Kwon will respond to the SEC’s billion-dollar demands. The SEC’s motion signifies the agency’s efforts to hold individuals and companies in the crypto industry accountable for their actions and to protect investors. The outcome of Kwon’s legal battles and the SEC’s regulatory challenges will have implications for the wider crypto community and the future of the industry. It remains to be seen how regulators and market participants will navigate these issues in the ongoing evolution of the digital asset landscape.
