SEC may recover only a fraction of its multibillion-dollar settlement with Terraform Labs due to the firm‘s bankruptcy filings.
The United States Securities and Exchange Commission (SEC) may ultimately receive only a minor portion of the multibillion-dollar settlement with Terraform Labs.
Terraform filed for bankruptcy in January, with liabilities totaling $450.9 million and assets valued at $430.1 million, according to a report by The Wall Street Journal.
As part of a settlement that was disclosed on June 12, Terraform Labs has consented to pay the securities regulator approximately $4.47 billion.
The remedies consist of disgorgement sanctions of approximately $3.6 billion, a civil penalty of $420 million, and prejudgement interest of nearly $467 million. Court approval is still pending for the settlement.
Claims are prioritized in bankruptcy. Typically, secured creditors receive payment first, followed by unsecured creditors, who frequently include fines and penalties owed to government agencies such as the SEC.
In this scenario, the SEC would be required to delay the receipt of any funds until lenders and other secured creditors have been compensated.
Terraform Labs and its originator, Do Kwon, were sued by the agency in 2023 for the sale of unregistered securities and the deception of investors as a result of the Terra ecosystem collapse.
Kwon has been apprehended in Montenegro, and the United States and South Korea are currently pursuing his extradition.
The SEC has reportedly portrayed the settlement as a reasonable penalty for “one of the largest securities frauds in U.S. history,” despite the low likelihood of receiving funds.
In a letter distributed to U.S. District Judge Jed Rakoff on June 12, the agency stated the following:
“If approved, the proposed judgment will send an unmistakable deterrent message to not only those who engage in brazen misconduct, but also to all those who seek to evade the requirements of the federal securities laws by crafting new standards of behavior for crypto assets that fall under the purview of the federal securities laws.”
The agency collected a total of $2.8 billion in fines and penalties in 2023, as reported by the Journal.
