SEC seeks $5.3 billion fine for Do Kwon and Terraform Labs

The United States Securities and Exchange Commission (SEC) is asking a New York court for a $5.3 billion fine against Terraform Labs and its co-founder Do Kwon.

The fine would be due to the collapse of the Terra (LUNA) ecosystem in 2022, which wiped around US$40 billion from the market, resulting in losses, bankruptcies and judicial recovery processes for several companies.

Earlier this month, a Manhattan jury found that Terraform Labs and Kwon were responsible for civil fraud under the project. According to the indictment, they had misled investors about the stability of their native “algorithmic” stablecoin, Terra USD (UST), and the use cases for the Terra blockchain.

“The Court must send an unequivocal message that this type of blatant misconduct and the Defendants’ misguided attempt to excuse their behavior by creating new rules and standards of behavior for the cryptocurrency markets in violation of federal securities laws […] will not be tolerated,” the SEC said in a document.

SEC wants Kwon’s billion-dollar fine

The SEC is seeking Terraform Labs and Kwon to pay $4.74 billion in waivers and prejudgment interest. Additionally, it seeks a total of $520 million in civil penalties. In this case, US$420 million would come from Terraform Labs and US$100 million from Kwon himself.

As the SEC highlighted, Kwon and Terraform Labs made “more than $4 billion in ill-gotten gains from their illegal conduct.”

Court documents reveal that sales of LUNA and MIR to institutional investors totaled $65.2 million and $4.3 million, respectively.

Additionally, sales of LUNA and UST through Luna Foundation Guard (LFG) reached $1.8 billion. Investors also purchased $2.3 billion worth of UST across various crypto asset trading platforms. The purchases took place between June 2021 and May 2022.

In addition to fines, the SEC seeks to prohibit Kwon and Terraform Labs from committing future securities violations and from buying or selling any crypto assets. They are also seeking a ban on Kwon serving as a director or officer in a public company reported to the SEC.

During the trial, current CEO of Terraform Labs, Chris Amani, stated that the company continues to work on developing products and selling tokens. The SEC criticized Amani’s testimony, calling it a “direct acknowledgment of likely recidivism.”