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SEC Seeks $5.3 Billion in Fines from Terraform Labs and Do Kwon
The US Securities and Exchange Commission (SEC) has made a substantial demand for fines totalling nearly $5.3 billion from Terraform Labs and its former CEO, Do Kwon. The fines are a result of alleged violations of US securities laws and accusations of fraud. The SEC outlined its requested fines in a legal filing dated April 19th.
Details of the Fines
The SEC is primarily pursuing $4.2 billion in disgorgement, in addition to $545.7 million in prejudgment interest. The disgorgement is intended to compel Terraform Labs and Kwon to relinquish any “unjust enrichment” obtained from various sources, including token sales to institutional investors, sales through a Luna Foundation Guard contract with Genesis Asia Pacific, and transactions on cryptocurrency exchanges spanning from June 2021 to May 2022.
Moreover, the SEC is seeking civil penalties, with a proposed $420 million fine against Terraform Labs and a $100 million fine against Do Kwon. These penalties, although significantly less than the total gains acquired by the defendants, serve as both punitive measures and deterrents.
Additional Measures
Aside from monetary penalties, the SEC has requested nonmonetary actions such as injunctions aimed at ensuring compliance with the Securities Act of 1933 and the Exchange Act of 1934. The regulatory body also seeks conduct-based injunctions that would prohibit the defendants from engaging in the purchase, offer, or sale of crypto asset securities, including but not limited to Terra-related tokens like UST, MIR, LUNA, wLUNA, and LUNA 2.0. Additionally, the SEC aims to prevent the defendants from persuading others to conduct such transactions.
Moreover, the SEC intends to bar Terraform Labs from discharging its financial obligations through bankruptcy, given the firm’s Chapter 11 bankruptcy protection filing in January. The agency also aims to permanently disqualify Kwon from holding officer or director positions in publicly traded companies and mandate him to provide a sworn financial account.
Responses from Terraform Labs and Do Kwon
In response to the proposed remedies, both Terraform Labs and Do Kwon have presented their arguments. Terraform Labs’ legal team has emphasized that any remedies should only be based on proven token sales executed within the US, stating that most activities occurred outside the US and have not been addressed in court proceedings.
Kwon and his legal representatives have contested the allegations of harm, claiming there is no evidence that Kwon personally benefitted from any illicit gains apart from those obtained through Terraform Labs. Both parties have suggested that the maximum civil penalties should be lower than what the SEC has requested, with Terraform Labs’ defense proposing a maximum penalty of $3.5 million and Kwon’s defense advocating for a penalty below $1 million.
Furthermore, both parties have argued against the necessity of injunctions, asserting that the likelihood of future transgressions is minimal under existing circumstances. The SEC’s charges against Terraform Labs and Do Kwon were initially filed in February 2023, with the trial commencing in March and resulting in a verdict of fraudulent activities in April.
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