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Terraform and Do Kwon Challenge SEC’s $5.3 Billion Fine

Do Kwon

Lawyers representing Terraform Labs and its co-founder, Do Kwon, are contesting the proposed fines from the U.S. Securities and Exchange Commission (SEC), arguing that a penalty closer to $1 million is more reasonable than the proposed $5.3 billion.

The SEC‘s proposal includes a demand for about $4.7 billion in disgorgement and prejudgment interest, along with civil penalties of $420 million for Terraform and $100 million for Kwon. However, the lawyers representing the defendants believe that these figures are excessively high.

In a court filing posted late last week, Terraform and Kwon’s legal team argued for a significantly lower penalty. They stated that the court should not grant injunctive relief or disgorgement and should, at most, impose a $1 million civil penalty against Terraform Labs (TFL).

The SEC charged Terraform and Kwon in February 2023 over issues related to the algorithmic stablecoin Terra USD (UST), which experienced a dramatic collapse in value a year earlier. Terra USD, linked to the governance token luna, aimed to maintain price stability through algorithmic market incentives. However, in May 2022, UST crashed, resulting in losses exceeding $50 billion.

A jury recently found both Terraform and Kwon liable for civil fraud, based on allegations that they misled investors. Key issues examined by the jury included claims by the SEC that Terraform and Kwon violated federal securities laws through fraudulent activities related to the trading of Terraform securities. Additionally, Judge Jed Rakoff had previously granted summary judgment to the SEC, supporting claims that Terraform and Kwon offered and sold unregistered securities.

Following the verdict, a spokesperson for Terraform stated that the company is carefully evaluating its options and considering its next steps in response to the legal proceedings.

READ:  SEC Finds TerraformLabs' Attorney Fee Suspicious

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