As a researcher with a background in finance and securities law, I cannot help but feel deeply troubled by the latest developments surrounding Terraform Labs and its disgraced founder Do Kwon. The scale of the losses inflicted on investors as a result of the collapse of the Terra stablecoin ecosystem is truly staggering – over $45 billion evaporated in the blink of an eye.
The notorious Terraform Labs, responsible for the collapse of the Terra stablecoin, have reached a $4.5 billion settlement with the United States Securities and Exchange Commission (SEC). Concurrently, Do Kwon, Terraform’s disgraced founder, and other implicated individuals will be barred permanently from managing any ventures within the crypto sector. A New York judge has endorsed this agreement.
In a press release, the Securities and Exchange Commission (SEC) announced that Terraform Labs PTE, Ltd., and Do Kwon have agreed to pay over $4.5 billion in penalties following a unanimous jury verdict. The SEC found them liable for orchestrating a multi-year fraud involving crypto asset securities. This scheme, which led to significant investor losses when it ultimately collapsed, was the focus of the case.
Terraform has agreed to a total payment of $4.52 billion, which includes a disgorgement amount of $3.6 billion and a penalty of $1.08 billion. Among this amount, Kwon is personally responsible for the disgorgement of an additional $110 million. Furthermore, Terraform will pay $420 million as a civil penalty, while Kwon will also bear this penalty and an additional prejudgment interest of $14.3 million. Similarly, Terraform will pay $80 million in prejudgment interest, and Kwon is responsible for this amount as well.
Kwon and his team managed the Terra ecosystem, introducing an algorithmic stablecoin named TerraUSD (UST). This digital coin was designed to maintain a value linked to the US dollar through another token in the system, Terra Classic (LUNC). An intricate algorithm facilitated this balance using a mint-and-burn mechanism, which presented profitable arbitrage chances for UST price stabilization around $1. However, in 2022, an unexpected shift occurred within the algorithmic equilibrium between the two assets. Consequently, UST’s value detached from the US dollar, causing LUNC prices to plummet dramatically.
In February 2023, the Securities and Exchange Commission (SEC) filed a lawsuit against Terraform Labs and Do Kwon for allegedly selling unregistered securities, resulting in approximately $45 billion being wiped out from the market almost instantly. According to Gary Gensler, Chair of the SEC, “The true nature of a product, rather than its labeling or marketing, is what determines whether it falls under the purview of securities law.”
The financial situation of Terraform Labs is uncertain as they hold assets valued at approximately $430.1 million but carry liabilities totaling $450.9 million. Their CEO, Do Kwon, is currently incarcerated in Montenegro for attempting to leave the country using false documents. Montenegrans are considering which nation to extradite him to, as both the United States and South Korea have filed criminal charges against him.
Image by Sergei Tokmakov, Esq. https://Terms.Law from Pixabay
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2024-06-14 20:18