On June 13, 2024, the Securities and Exchange Commission (SEC) announced a landmark
settlement with Terraform Labs PTE, Ltd. and its CEO, Do Kwon, totaling over $4.5 billion.
This resolution follows a unanimous jury verdict that held the defendants liable for orchestrating
fraud involving crypto asset securities, resulting in massive investor losses when the scheme
unraveled.

Uncovering the Fraud
In a nine-day jury trial held in April, the extent of Terraform Labs and Do Kwon’s deception was
brought to light. The SEC presented evidence showing that the defendants had misled investors
about the use of the Terraform block chain to settle transactions and the stability of their crypto
asset security, UST. When UST de-pegged from the U.S. dollar in May 2022, its value, along
with Terraform’s other tokens, plummeted to nearly zero, erasing $40 billion in market value
almost overnight. This collapse caused devastating financial losses for countless investors,
including many retail investors who had trusted Terraform’s false claims and invested their life
savings.

The Verdict and Settlement
On December 28, 2023, the District Court found Terraform and Kwon liable for offering and
selling crypto asset securities in unregistered transactions. Subsequently, on January 21, 2024,
Terraform filed for Chapter 11 bankruptcy in the U.S. Bankruptcy Court for the District of
Delaware. The culmination of these proceedings was a jury verdict on April 5, 2024, that found
Terraform and Kwon guilty of securities fraud after less than two hours of deliberation.

As part of the settlement, Terraform agreed to pay $3.6 billion in disgorgement, $467 million in
prejudgment interest, and a $420 million civil penalty. The company also consented to cease the
sale of its crypto asset securities, wind down operations, replace two of its directors, and
liquidate remaining assets to compensate investor victims and creditors, subject to court
approval.

Do Kwon, on his part, agreed to pay $110 million in disgorgement and $14.3 million in
prejudgment interest, alongside an $80 million civil penalty. The final judgment permanently
enjoins both Terraform and Kwon from violating registration and fraud provisions.

Industry Impact and Legal Insights
This case reinforces a fundamental principle in securities law: the economic realities of a
product—not the labels, the spin, or the hype—determine whether it is a security. SEC Chair
Gary Gensler emphasized that Terraform and Do Kwon’s fraudulent activities resulted in catastrophic losses for investors, underlining the importance of compliance with securities laws
to protect investors from harm.

Gurbir S. Grewal, Director of the SEC’s Division of Enforcement, remarked on the scale of the
fraud, noting that it was one of the largest in U.S. history. He highlighted the SEC’s commitment
to holding such perpetrators accountable and ensuring justice for the victims, despite the
substantial resources deployed by crypto asset defendants to evade regulatory scrutiny.

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