Terraform Labs (TFL) and its founder, Do Kwon, are under pressure to pay $5.3 billion in cumulative damages for fraud related to their now-defunct Terra blockchain.
In a filing dated April 19, the U.S. Securities and Exchange Commission (SEC) requested that Kwon and his company be ordered to pay ~$4.2 billion in disgorgement and ~$546 million in pre-judgment interest after losing its lawsuit against the regulator on all counts earlier this month.
The agency requested that Terraform and Do Kwon pay a $420 million and a $100 million civil penalty, respectively, in addition to the disgorgement charges.
The order also stipulated that monetary remedies imposed against the firm could not be discharged in bankruptcy, and that the order would bar Kwon from again acting as director of a securities issuer.
Should the court abide, the case could go down as the largest crypto-related enforcement action ever, surpassing the Department of Justice’s $4.3 billion settlement with Binance, the world’s largest crypto exchange, in February.
Whereas Binance’s charges at the time were related to a lack of anti-money laundering controls, TFL’s case related to securities law violations and defrauding investors.
That includes misleading investors about its blockchain’s associated token and stablecoin – LUNA and UST – about their stability and ability to generate investor returns.
“Through these deceptions, the defendants caused devastating losses for investors and wiped out tens of billions of market value nearly overnight,” said SEC Division of Enforcement Director Gurbir S. Grewal in a statement following the court’s verdict against TFL and Kwon on April 5.
“For all of crypto’s promises, the lack of registration and compliance have very real consequences for real people,” he continued.
In response to the SEC’s request, Kwon has argued against any form of injunctive relief against him, claiming there is no evidence that Kwon will repeat the same “alleged” conduct.
His lawyers also claimed that disgorgement fines are unjustified given that Kwon did not receive any illegal profits from his scheme independent of TFL’s earnings.
Regarding civil penalties, Kwon’s lawyers claimed he should be charged a little over $800,000.
“For the foregoing reasons, the Court should not grant injunctive relief or disgorgement against Mr. Kwon, and may assess appropriate civil penalties based on the criteria discussed above and in TFL’s remedies brief to the extent the SEC meets its burden of proof,” the filing concluded.