SEC Pursues Terraform Labs: $5.3B Verdict

The SEC has asked a New York court to award Terraform Labs co-founder Do Kwon $5.3 billion. This punishment is based on Terraform Labs' $40 billion participation in the Terra ecosystem collapse last year, which shook the cryptocurrency world.

Kwon and Terraform Labs were convicted of civil fraud this month. A Manhattan jury determined that they inflated Terra blockchain potential and misrepresented Terra USD (UST) reliability. The SEC demanded a final judgment to punish the defendants after the jury's verdict.

Kwon and Terraform Labs could face $520 million in SEC civil fines, $4.74 billion in disgorgement, and prejudgment interest. Terraform Labs would pay $420 million, and Kwon $100 million.

The SEC alleged in a detailed brief that Kwon and his firm gained over $4 billion in illicit gains, with the prospect of more. Other securities sales include $65.2 million of LUNA and $4.3 million of MIR to institutional investors and more than $4 billion through Luna Foundation Guard (LFG) and crypto trading platforms.

The SEC emphasizes that heavy penalties are necessary as a deterrent to future crimes as well as retaliation, and feels that the amount is a reasonable assessment of Kwon and his company's illegal revenues.

Furthermore, the SEC is seeking strict injunctive action against Kwon and Terraform Labs. The proposed punishments include a ban on future securities breaches and limitations on trading crypto asset securities. Furthermore, an officer-and-director ban would preclude Kwon from ever holding a senior position in an SEC-reporting public firm again.

The SEC's motion emphasizes the defendants' apparent lack of remorse and the possibility of future breaches, as stated at the trial by current Terraform Labs CEO Chris Amani. Amani's testimony highlighted Terraform's continuous product development and token sales, which the SEC cited as indicators of potential recidivism.

However, in response to the SEC's inquiries, Terraform Labs has argued for a small civil penalty for US-based breaches, referencing the company's current financial struggles and assets of about $150 million. The defense team representing Kwon argued against the SEC's request for injunctive relief, pointing to his current state of unemployment and the possibility of criminal accusations.

Kwon remains jailed in Montenegro after being arrested last year for trying to go to Dubai with false passports. Montenegrin officials are also reviewing extradition requests from the United States and South Korea, where he faces further criminal charges in connection with the Terra collapse.

This high-stakes legal battle shows the SEC's increasing will to punish wrongdoing in the new cryptocurrency business and emphasizes how unpredictable cryptocurrency operations may be. This lawsuit has the potential to set a significant precedent for the regulation and accountability of digital currency.