The embattled crypto mogul Do Kwon, held in Montenegro, agreed to a $204 million personal settlement with Terraform Labs to pay $4.5B to terminate the fraud case leveled by the SEC.

The US Securities and Exchange Commission (SEC) reached a settlement with Terraform Labs and Kwon following their May liability ruling for civil charges in the $40 billion collapse of LUNA and UST stablecoin in May 2022.

Kwon and Terraform agree $4.5B settlement with SEC

The court filing on Wednesday, June 12, followed the decision by the Manhattan jury that held Kwown and Terraform Labs liable for misleading investors regarding the Terra blockchain’s success and stability before its implosion in May 2022. 

The agreement with the SEC mandates Terraform Labs and Kwon to settle $4.5 billion comprising ill-gotten gains and interest. The defendants incur a $420 million civil penalty and serve a ban for engaging in crypto asset-backed securities transactions. 

The crypto entrepreneur is challenging his extradition orders to the US or his home country, South Korea. The settlement requires the once-crypto mogul to pay the millions himself.

Like Binance co-founder Changpeng Zhao, Kwon must settle the monetary relief aligned to SEC’s deterrent efforts. The agency noted that the $204m constitutes nearly the relief the regulator sought against the entrepreneur. 

The court documents illustrate that funds will be remitted from Kwon to Terraform Labs’ bankruptcy estate. Nonetheless, the agreement is pending approval of New York Southern District Court Judge Jed Rakoff.

The sudden collapse of LUNA and UST in 2022 triggered a series of crypto-related blowups that became contagious and downed crypto exchange FTX in November. The collapse plunged the crypto industry into a prolonged winter that caused several firms to file for bankruptcy.  

UST is an algorithmic stablecoin whose value is pegged to the US dollar. Unlike the assets-backed backing utilized in most stablecoins, including Tether (USDT) and USD Coin (USDC), the stablecoin maintained its unit value to the dollar via a trading incentives series. 

Legal battle

Kwon was smoked from his hiding in Montenegro in late 2023 as he attempted to travel via a falsified passport. His arrest sparked a tug-of-war between various jurisdictions on where to extradite the mogul and face criminal charges. 

The former Terra Labs chief saw the US Department of Justice (DOJ) level fraud charges. Similarly, South Korea opened separate charges accusing Kwon of orchestrating financial crimes, including bribery, fraud, transaction volume manipulation, and contravening capital market laws. 

Though released from prison following a four-month sentence, the crypto mogul remains in Montenegro awaiting a decision on the extradition. However, the settlement with the SEC presents another bearing in the extradition case. 

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