Do Kwon, Terraform Labs Face $5.3B in Fine Over UST Crash

Terraform Labs and Do Kwon could Face Record-Setting $5.3 Billion Fine From SEC Over UST Crash.

The U.S. Securities and Exchange Commission (SEC) is demanding punitive measures against TerraForm Labs and its originator, Do Kwon, for their substantial involvement in the 2022 Terra Luna disaster.

The Terra Luna ecosystem collapsed in May 2022 and destroyed Terra (LUNA) and Terra USD (UST), an algorithmic stablecoin.

Due to TerraForm Labs and Do Kwon’s joint liability in the SEC-initiated customer defrauding case from February 2023, Do Kwon was not allowed to present his case at the Manhattan hearing.

At the time, the co-founder of the Terra Luna blockchain was incarcerated for four months for forged multiple documents, including a Costa Rican passport, in Podgorica, Montenegro.

The Lawyers for Terra Protest The Prodigious Fine

In addition to wiping out over $40 billion from the cryptocurrency markets, the disastrous de-pegging of Terra USD (UST) triggered a domino effect that affected numerous cryptocurrency hedge funds, including Three Arrows Capital (3AC) and Celsius Network (CEL).

Su Zhu and Kyle Davies, co-founders of 3AC, maintained low profiles during Do Kwon’s disappearance and reappeared online when the FTX collapsed later that year.

In contrast, the defense of TerraForm Labs and Do Kwon contends that the suggested monetary penalty is excessively high.

They propose reducing the disgorgement penalty to $3.5 million, a significant amount less than the $4.7 billion proposed by the Securities and Exchange Commission (SEC). Furthermore, defense counsel for Terra proposed a reduction in Do Kwon’s penalty to $800,000.

In the end, this $5.3 billion disgorgement and civil fraud penalty will surpass Binance’s Department of Justice settlement by approximately $1 billion and go down in crypto history as the most extensive cryptocurrency-related punitive enforcement ever, provided that the “conservative and reasonable” SEC refrains from adjusting the penalty amount.

At the Reverse

According to TerraForm Labs’s defense, the de-pegging of Terra USD (UST) was a transgression of smart contracts. However, the SEC asserts that TerraForm Labs artificially inflated the coin’s price.

Furthermore, the Securities and Exchange Commission (SEC) contends that UST was never fixed to $1 and that the defendants possessed complete control over it.

In the aftermath of the 2022 crisis, Terra Luna’s distraught investors are seeking relief. This prominent case is destined to establish a future regulatory precedent for cryptocurrencies.