Terraform Labs shutting down after €4.16 billion settlement with US SEC

Category: Americas Crypto Regulatory

Terraform Labs has announced its closure following a substantial $4.47 billion (€4.16 billion) settlement with the U.S. Securities and Exchange Commission (SEC) to resolve a high-profile fraud case.  

Chris Amani, CEO of Terraform Labs, confirmed the shutdown in a post on social media platform X, stating, “TFL always intended to dissolve at some point, and that point is now. We will be winding down operations completely.” Amani added, “We were well positioned to accelerate things if we had won the trial, but unfortunately we lost and as a result, can no longer operate.” 

The settlement, pending approval from U.S. District Court Judge Jed Rakoff, mandates Kwon Do-hyung, former CEO of Terraform Labs, to contribute $204 million (€190 million) to the bankruptcy estate. If approved, Kwon will face a ban from cryptocurrency transactions and will be prohibited from holding executive positions in public firms.  

This settlement follows the collapse of Terraform Labs’ stablecoin, TerraUSD, and its associated cryptocurrency, LUNA, in May 2022, which caused major upheaval in the cryptocurrency market. The collapse, which led to investor losses estimated at $40 billion (€37.25 billion), stands as one of the most significant fraud cases in U.S. history. 

Legal troubles and extradition issues 

Kwon, currently detained in Montenegro on charges of using a fake passport, is also facing fraud charges from the U.S. Department of Justice and financial crime allegations in South Korea. The downfall of Terraform’s stablecoin marked a pivotal moment in a series of cryptocurrency market disruptions, including the notable crash of the FTX exchange. Kwon’s legal troubles are compounded by ongoing extradition efforts from both the United States and South Korea. 

Breakdown of the settlement 

The $4.47 billion (€4.16 billion) civil settlement with the SEC includes $4.05 billion (€3.77 billion) in disgorgement, interest, and a $420 million (€391 million) civil fine for Terraform Labs. Despite this substantial judgment, much of it is unlikely to be paid due to Terraform’s bankruptcy filing in January

Instead, the settlement amount will be treated as an unsecured claim in Terraform’s Chapter 11 bankruptcy case, where the company is undergoing liquidation. The total judgment sum is $4.55 billion (4.23 billion), factoring in an additional $80 million (€74.5 million) civil fine for Kwon. He has agreed to the terms, which include a prohibition on participating in cryptocurrency transactions and a requirement to transfer $204.3 million (€190.2 million) to Terraform’s bankruptcy estate. 

SEC’s statement on the settlement 

The SEC stated in a court filing that this judgment aims to maximise the return of funds to harmed investors and ensure Terraform is permanently shut down. “Entry of this judgment would ensure the maximal return of funds to harmed investors and put Terraform out of business for good,” the SEC noted, adding that the proposed judgment is fair, reasonable, and in the public interest. Terraform and Kwon consented to the judgment, although their lawyers have not responded to requests for comment. 

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