The United States Securities and Exchange Commission (SEC) has commenced legal proceedings against Terraform Labs and its co-founder, Do Kwon, through a demand for the payment of civil fines and disgorgement totaling billions of dollars. This action follows a civil judgment, with the SEC aiming to hold Terraform Labs and Kwon accountable for alleged violations.
In response to the SEC’s petition, Terraform Labs and Kwon are facing demands to pay approximately \(4.7 billion in disgorgement and prejudgment interest. Disgorgement involves the repayment of unlawfully acquired profits, while prejudgment interest compensates for the time value of money. Additionally, the SEC is seeking \)520 million in civil penalties, allocating \(420 million to Terraform Labs and \)100 million to Kwon.
Both Terraform Labs and Kwon have presented their arguments in the civil case, suggesting potential solutions. Terraform Labs proposed a maximum civil penalty of \(3.5 million, while Kwon recommended an \)800,000 penalty. These figures are notably lower than the SEC’s proposed amounts.
Furthermore, the SEC is considering additional measures to prevent future violations beyond the already imposed disgorgement and civil penalties. Specifically, the SEC is seeking to bar Kwon from serving as an officer or director of a securities company. Moreover, they aim to secure a “conduct-based injunction” to prevent Terraform Labs and Kwon from engaging in similar breaches in the future.
The significance of SEC enforcement is underscored by the recent request for disgorgement and civil penalties against Terraform Labs and Do Kwon. This enforcement action highlights the SEC’s commitment to protecting investors and prosecuting violators of securities laws. By holding individuals and entities accountable for their actions, the SEC upholds the integrity of financial markets and promotes equitable practices.
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