Terra Labs, Do Kwon Settle SEC Fraud Case

The United States fraud case against Do Kwon, the disgraced founder of collapsed crypto company Terraform Labs, looks like it is nearing completion.

Reuters reported that Terraform Labs and its co-founder Do Kwon have reached a tentative settlement with the US Securities and Exchange Commission (SEC).

In February 2023 the SEC had charged Singapore-based Terraform Labs PTE Ltd and Do Kwon with orchestrating a multi-billion dollar crypto asset securities fraud that lead to the 2022 collapse of the $40 billion digital asset project – which included the stablecoin Terra and its sister token Luna.

SEC trial

In December last year a US federal judge ruled that Do Kwon and Terraform Labs had violated US law by failing to register the two digital currencies that had collapsed in 2022.

A trail against Do Kwon and Terraform Labs began in New York on 26 March 2024, and concluded in April, when both were found liable on civil fraud charges.

The civil fraud trial saw a Manhattan jury conclude that both had misled investors about the stability of their so-called “algorithmic” native stablecoin, Terra USD (UST), and the use cases for the Terra blockchain.

Last month the SEC had asked US District Judge Jed Rakoff in Manhattan to impose $5.3 billion in fines on Terraform Labs and Do Kwon.

In the end the SEC sought a $420 million fine on the company and a $100 million fine for Kwon, and for both to be banned from dealing in “crypto asset securities.”

Tentative settlement

Now Reuters has reported that Terraform Labs and Do Kwon have reached a tentative settlement with the SEC.

The deal but not its terms was disclosed on a court website on Thursday, but Judge Rakoff has reportedly asked the SEC and the defendants to file papers supporting the settlement by 12 June.

An SEC spokesperson and attorneys for the defendants declined to comment to Reuters.

Extradition case

Do Kwon still faces related criminal charges in the US and Singapore, and he remains in the Balkan nation of Montenegro, pending his extradition to either South Korea or the US.

The High Court in Montenegro had in February this year ruled that Do Kwon (also known as Kwon Do-hyeong) should be extradited to the US to stand trial on fraud charges, rather than to his native country of South Korea, which had issued an international arrest warrant for him ahead of the US.

However Do Kwon successfully appealed that High Court ruling, after the panel of the Court of Appeals said the approved US extradition request was not legally sound.

Then in early March the high court in Montenegro ruled that Kwon could be extradited to South Korea to face criminal charges.

Kwon appealed this, but an official notice in March revealed that the Montenegro appeals court had rejected that appeal from Do Kwon.

Despite the ruling, it is reported that the Montenegrin government is currently weighing competing extradition requests from both the US and South Korea.

Protracted case

The case against Do Kwon and Terralabs has been ongoing for a while now.

It is thought that nearly 250,000 people had invested in Terraform Labs’ coins, and blockchain analytics firm Elliptic estimated that investors in TerraUSD and Luna lost an estimated $42 billion – a far bigger number than the recent trial of FTX’s Sam Bankman-Fried.

Do Kwon had denied that he was on the run, but did not reveal his whereabouts after police in Singapore could not locate him, after South Korea had issued an international arrest warrant, and Interpol issued a “red notice” for his arrest.

After months of searching Do Kwon was arrested in Podgorica, the capital city of the Balkan country of Montenegro in March 2023.

Kwon and a second person identified as Han Chang-joon, Terraform Labs’ former finance officer, had been arrested when they tried to board a flight to Dubai.

Do Kwon had been sentenced to four months in prison in Montenegro for using fake travel documents, and had been held in custody there pending his extradition.