The US Securities and Exchange Commission (SEC) announced that Terraform Labs and its founder Do Kwon agreed to pay a fine of over $4.5 billion after the unanimous decision of the jury. This decision was recorded as one of the largest fraud penalties in the history of cryptocurrency. On the other hand, there was also an SEC development for Ripple, which is behind the altcoin XRP. Here are the details…
Terraform Labs and Do Kwon accused of fraud
cryptokoin.com As we reported, Terraform Labs founder Do Kwon has been in hot water for a while. The jury found Terraform Labs and Kwon responsible for orchestrating a years-long fraud involving LUNA and UST crypto asset securities. When the fraud scheme was unraveled, it resulted in huge investor losses. A nine-day jury trial in April revealed that the defendants carried out their scheme by misleadingly using the Terraform blockchain and deceiving investors about the stability of UST.
With the decoupling of UST from the US dollar in May 2022, the price of UST and Terraform’s other tokens dropped to almost zero. This situation caused investors a loss of approximately 40 billion dollars. The scam also victimized many individual investors who invested their life savings in Terraform’s ecosystem.
Statement from SEC Chairman Gensler for Terraform
SEC Chairman Gary Gensler said the following in his statement regarding the case:
This case confirms what the court always says: The economic facts of a product, not labels, speculation, or exaggerations, determine whether a product is a security. Terraform and Kwon fraudulent activities have resulted in devastating losses for investors, in some cases destroying their entire life savings.
As part of the compromise Terraform:
- Compensation amounting to $3,586,875,883
- Precautionary interest of $466,952,423
- Civil penalty of $420,000,000
accepted the payment. The company also agreed to halt sales of its cryptoasset securities, terminate its operations, fire two of its executives, and distribute its remaining assets to investor victims and creditors through a liquidation plan, subject to court approval in Terraform’s ongoing bankruptcy case.
There is also SEC development for Ripple Labs, one of the giant altcoin companies
Terraform Labs’ penalty was also echoed in Ripple Labs’ ongoing lawsuit with the SEC. Ripple argued that the $2 billion penalty proposal was disproportionate, citing the Terraform Labs-SEC agreement as an example. Ripple lawyers claimed that a fair penalty for the company should be around $10 million.
The final decision in the long-standing SEC-Ripple case is expected to come in July. Ripple CEO Brad Garlinghouse stated that in a negative outcome, XRP could be considered a security in the US and investors would not be able to trade XRP on most crypto trading platforms. These developments are considered an important turning point for the cryptocurrency market. Stricter regulations and deterrent measures on fraud and investor protection are expected to come to the fore.
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