gavel on a laptop

Singapore-based crypto platform Terraform Labs PTE Ltd. and its founder, Do Hyeong Kwon, have agreed to pay US$4.5 billion after a jury found that them liable for fraud involving crypto trading that amounted to unregistered securities trading.

In 2023, the U.S. Securities and Exchange Commission (SEC) charged Terraform and Kwon with securities fraud, alleging they raised billions from investors through unregistered offerings of crypto securities. These securities included the firm’s own stablecoin, Terra USD (UST), which was supposed to be pegged to the U.S. dollar.

In April, following a nine-day trial, a jury found them both liable.

According to the SEC, the trial “exposed the extent of the defendants’ lies to victims about the false use of the Terraform blockchain to settle transactions and about the stability of their crypto asset security, UST.”

In 2022, the value of that token dropped to near zero after it lost its peg to U.S. dollar.

“This wiped out $40 billion in market value nearly overnight and caused devastating losses to countless investors, including numerous retail investors who believed defendants’ lies and poured their life savings into Terraform’s ecosystem,” the SEC said.

In a settlement, Terraform agreed to pay US$3.6 billion in disgorgement, US$466 million in prejudgement interest, and a US$420-million penalty. Kwon agreed to pay US$110 million in disgorgement, an US$80-million penalty, and US$14.3 million in prejudgement interest.

The company, which filed for bankruptcy protection in the U.S. in January, also agreed to wind down its operations and to distribute its remaining assets to investors.

“This case affirms what court after court has said: The economic realities of a product — not the labels, the spin, or the hype — determine whether it is a security under the securities laws,” Gary Gensler, SEC chair, said in a release. “Terraform and Kwon fought our efforts to investigate — taking a fight over investigative subpoenas all the way to the Supreme Court. Thankfully, with this settlement, the victims of their massive fraud will now get some justice.”