Estranged blockchain startup Terraform Labs has agreed to pay the sum of $4.47 billion to settle a civil lawsuit levied against it by the US Securities and Exchange Commission (SEC) after the company’s collapse in 2022.
Terraform Lab Charged With Law Violation
The SEC charged Terraform and Do Kwon, its co-founder in February 2023 regarding the algorithmic stablecoin Terra USD (UST) collapse that happened a year prior.
The SEC claimed that the company deceived and misled investors. In support of this, in April a jury also found out that Terraform Labs and Kwon had misled investors and were held accountable for civil fraud after a two-week trial.
The key matters the jury examined were related to the SEC’s allegations that the protocol broke Federal Securities Laws through fraudulent activities linked to the trading of Terraform securities.
In the run-up to this settlement, Judge Jed Rakoff of the U.S. District Court for the Southern District of New York had ruled in favor of the SEC in its assertion that the protocol had sold unregistered securities.
Terraform Labs Set to Break Free
The SEC has requested that Judge Rakoff approved this settlement after submitting a “proposed final consent judgment” on Wednesday.
The plaintiff cited in the filing that it aims to combat the fraud by imposing significant penalties on the Defendants and swiftly recovering the lost billions for the investors.
The defendants’ lawyers pushed for $1 million in fines, while the SEC proposed $5.3 billion. Despite this, the blockchain startup agreed to settle by paying $4.47 billion.
Binance Exchange found itself in a similar situation with the Department of Justice due to compliance failures. This resulted in a $4.4 billion payment split among the agency, FinCEN, and the CFTC. Binance has also been fined in Canada recently for similar regulatory violations.
Following this was the founder Changpeng ‘CZ’ Zhao stepping down and now serving a 4 month prison sentence.
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