The US Securities and Exchange Commission (SEC) indicated that Terraform Labs PTE, Ltd. and its co-founder and CEO, Kwon Do-Hyung – better known as Do Kwon – agreed to pay over $4.5bn after a jury unanimously found them guilty of fraud.
Terraform and Kwon to Pay $4.5bn Fine after Guilty Verdict
The Singapore-based cryptocurrency platform and Kwon defrauded clients for years through crypto asset securities, resulting in huge losses when the business failed. The SEC lodged its case against Terraform and Kwon in February 2023.
The financial watchdog said the trial, which took place in April 2024, unveiled how Terraform and its CEO deceived victims through false claims about blockchain settlements and the stability of its crypto asset security, UST. After the UST “de-pegged” from the USD in May 2022, its price and that of other Terraform tokens crashed to almost zero and obliterated “$40bn in market value nearly overnight” causing crippling investor losses.
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According to the SEC, some retail investors “poured their life savings into Terraform’s ecosystem”. The regulator’s chairperson, Gary Gensler, commented:
This case affirms what court after court has said: the economic realities of a product—not the labels, the spin, or the hype—determine whether it is a security under the securities laws. Terraform and Do Kwon’s fraudulent activities caused devastating losses for investors, in some cases wiping out entire life savings.
Ripple Labs Inc., a cross-border payment and digital asset platform, pushed back against its $2bn SEC fine using the Terraform penalty as a benchmark. It maintains that this fine is too harsh as there are no fraud allegations against it, and investors suffered minimal losses. Ripple believes a punishment of approximately $10m is more suitable.
