The cryptocurrency industry faces another significant setback as Terraform Labs, a crypto company, has agreed to pay a $4.47 billion fine and is barred from engaging in crypto asset securities trading, according to documents filed by the SEC in Manhattan federal court on Wednesday.
The SEC stated in its filing, "This judgment ensures the maximum recovery of funds for harmed investors and permanently shuts down Terraform Labs."
Terraform Labs, headquartered in Singapore, is known for issuing the stablecoin TerraUSD, pegged to the U.S. dollar. The SEC accused Terraform Labs and its founder Do Kwon of raising billions of dollars from investors by selling various interlinked digital currencies without proper regulatory approval, including the stablecoin TerraUSD.
The collapse of TerraUSD and its sister token Terra (LUNA) in 2022 resulted in investor losses amounting to $40 billion, drawing significant regulatory scrutiny.
In September 2022, South Korean prosecutors requested Interpol to issue a red notice for Do Kwon, the mastermind behind the collapse. In early 2023, Do Kwon was arrested by Montenegro police while attempting to board a private jet using a Costa Rican passport.
The SEC subsequently charged Terraform Labs and Do Kwon with defrauding investors who bought TerraUSD and LUNA tokens. A New York jury found Terraform Labs and Do Kwon liable in April this year.
As part of the SEC's proposed settlement with the court, Do Kwon will personally pay an additional $204 million in compensation to investors and is barred from serving as an executive or director of any public company. The SEC emphasized that, if approved, the proposed judgment sends a clear deterrent message to wrongdoers and warns those attempting to circumvent federal securities laws by establishing new standards of conduct.
Over the past two years, the SEC has intensified its crackdown on the cryptocurrency industry, causing widespread fear among crypto investors. The SEC has filed civil lawsuits against various cryptocurrency trading platforms, including FTX, Binance, and CoinDesk.
Earlier this year, FTX founder Sam Bankman-Fried was found guilty of fraud by a New York jury and sentenced to 25 years in prison. Binance founder Changpeng Zhao was sentenced to four months in prison in 2023 and fined $4.3 billion.
