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Do Kwon and Terraform Could be Fined $5.3 Billion – Why Would They Have to Pay More than Binance?

Published April 25, 2024 9:24 AM
Teuta Franjkovic
Published April 25, 2024 9:24 AM
By Teuta Franjkovic
Verified by Peter Henn

Key Takeaways

  • The SEC has asked a court to order Terraform Labs and Do Kwon to pay a $5.3 billion fine..
  • Terraform Labs and Do Kwon are facing intense legal pressure.
  • Do Kwon’s fine is bigger than Changpeng Zhao’s, but Binance’s company penalty is much larger.

The United States Securities and Exchange Commission (SEC) has requested  that the court mandate Terraform Labs and its founder, Do Kwon, to pay approximately $5.3 billion as part of the final judgment in their case.

This figure comprises $4,192,147,847 in disgorgement of profits deemed illegally obtained and $545,748,909 in prejudgment interest, reflecting the gains accrued from these profits over time before the judgment. Kwon himself will also have to pay a $100 million fine if the court accepts the SEC’s proposals. Meanwhile, Binance is facing a smaller fine as founder Changpeng “CZ” Zhao prepares for a prison sentence. Zhao also faces a personal fine of $50 million.

SEC Cracks Down on Terraform Labs and Do Kwon

The SEC recently filed a motion  seeking a final judgment against Terraform Labs and Kwon. This action follows a jury verdict delivered on April 5, which found the defendants guilty on all charges .

In its motion , the SEC is urging the court to enforce a permanent injunction.

The SEC’s recent motions in the case against Terraform Labs and Kwon, extend beyond seeking significant financial penalties. The regulator has proposed a $420 million civil penalty for Terraform and a $100 million penalty for Kwon, contributing to a total demand nearing $5.3 billion.

Additionally, the SEC has requested several non-monetary measures, including a conduct-based injunction to restrict future activities of the defendants, a comprehensive financial accounting from Kwon, and an officer-and-director bar to prevent Kwon from holding these positions in any public company.

The SEC also advocated for the court to ensure that any fraud-related financial penalties imposed on Terraform are declared non-dischargeable in bankruptcy, seeking to solidify the repercussions and uphold them even if Terraform were to file for bankruptcy.

“We Disagree” – Terraform Labs Vows to Fight $5.3 Billion SEC Penalty

Following the verdict, Terraform Labs expressed its disappointment  and skepticism about the jury’s decision.

Terraform Labs has not yet responded publicly to the SEC’s demand for a $5.3 billion penalty.

Kwon found himself in legal trouble after being arrested in Montenegro in June last year. He was detained while trying to leave the country using a counterfeit passport. In the United States, prosecutors charged him with eight criminal counts, including securities fraud, commodities fraud, and wire fraud.

Additionally, South Korea issued an arrest warrant for Kwon in September 2022, accusing him of violations related to capital market regulations. Currently, Kwon is embroiled in an extradition dispute involving both the US and South Korea as both nations want him to face charges.

From Ripple to Terraform: SEC Fines Escalate, Binance in Crosshairs?

The significant monetary penalties proposed by the SEC, as detailed in an April 19 court filing , highlight a forceful regulatory approach. While the court has yet to finalize the punishment for Terraform Labs and Kwon, the SEC aims to communicate a clear and firm message with its request for a $5.3 billion fine.

This stance appears part of a broader, more assertive strategy by the SEC, evidenced by its recent actions, including a proposed $1.8 billion penalty against Ripple and the context of other substantial fines, such as the $4.3 billion levied against Binance by various American regulators. Notably, the SEC did not participate in the Binance settlement. Meanwhile, prosecutors are seeking a three-year prison term for Zhao.

Since his appointment in 2021, SEC Chair Gary Gensler has maintained a cautious stance on cryptocurrency. This position gained urgency following the major collapses within the crypto industry in 2022, such as Terra, Three Arrows Capital, and FTX. In response, the Biden administration emphasized cryptocurrency regulation as a government-wide priority.

Why Do Kwon Faces More Than CZ Despite Binance’s Bigger Penalty

Amid this tightened regulatory environment, companies like Binance, Ripple, and individuals such as Do Kwon of Terraform Labs are experiencing significant legal pressures. Terraform lawyers have contested the SEC’s jurisdiction, proposing a cap on any potential fines to $3.5 million. Meanwhile, Kwon’s defense suggested a limit of $1 million. Conversely, Ripple has argued for a maximum civil penalty of $10 million. The company pointed out the SEC’s proposed fines were disproportionately high compared to past crypto settlements.

While it might seem unfair that Do Kwon is facing a much larger fine compared to Zhao, it’s crucial to consider the broader context. Zhao’s personal fine is indeed smaller, but Binance as a company has received a significantly larger penalty of $4.3 billion. When considering the total financial penalties imposed on both leaders and their companies, the overall burden appears more balanced.

However, there’s a notable difference in the repercussions for their respective companies. Terraform Labs, associated with Do Kwon, has filed for bankruptcy. As a result, this complicates authorities’ attemps to collect the fines due. In contrast, Binance is operational and adapting under new leadership with Richard Teng at the helm. This makes it easier for regulatory bodies to collect the imposed fines.

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