Terraform Labs to Pay SEC $4.5 Billion, Wind Down and Burn Assets

The SEC maintains that Terraform Labs is still in control of hundreds of millions of dollars from the Terra ecosystem.

Terraform Labs (TFL) and former CEO Do Kwon have agreed to a settlement with the U.S. Securities and Exchange Commission (SEC) that would see TFL paying a total of $4.5 billion in monetary penalties.

The proposed settlement, filed on Wednesday, is yet to be signed off by U.S. District Court Judge Jed Rakoff, and would also bar Kwon from serving as a director or officer of any public company.

TFL would be required to pay $3.58 billion in disgorgement, $466 million in prejudgment interest and a $420 million civil penalty. Meanwhile, Kwon would be liable for $110 million in disgorgement, $14.3 million in prejudgement interest and an $80 million civil penalty.

One of the wallets associated with TFL holds $74.5 million worth of assets, according to data from Arkham, but the whereabouts of the entity’s other asset holdings, and whether the value of those holdings will be enough to pay the multi-billion dollar sum to the SEC remains in question.

Still, the securities regulator has claimed that the proposed fine amount is a “conservative” measure” of TFL and Kwon’s unlawful gains. Lawyers for the SEC stood by those estimates in a letter to Judge Rakoff on Wednesday, noting that the defendants “still control” hundreds of millions of dollars from the TFL ecosystem and hold some of these assets through the Lune Foundation Guard (LFG).

As part of the proposed settlement, TFL has agreed to wind down its business within 30 days of the entry of judgment.

“The only disposition of Defendants’ crypto assets that the judgment permits is of those transferred to the Terraform bankruptcy estate pursuant to the terms of the judgment,” said lawyers for the SEC. 

“Otherwise, the judgment requires the Defendants to burn or destroy private keys in Terraform’s possession to wallets or blockchain assets holding UST, MIR, LUNA, wLUNA, and LUNA 2.0 (“Terraform Crypto Assets”), protecting investors from additional unregistered offers and sales of securities.”

TFL’s current CEO Chris Amani confirmed that the entity would, in fact, be dissolving operations and that a community proposal to burn all TFL’s unvested LUNA would soon be underway. 

“The community will need to take over ownership of the chain. I believe there are a couple teams and devs who want to do this and you should be seeing information in the forums soon,” said Amani on X.