The SEC may only receive a ‘fraction’ of a Terraform settlement.
The United States Securities and Exchange Commission may accept only a small portion of the multibillion-dollar settlement against Terraform Labs.
Terraform had $430.1 million in assets and $450.9 million in debt when the company filed for bankruptcy in January, according to a report by The Wall Street Journal.
Terraform Labs agreed to pay the securities regulator about $4.47 billion in a settlement announced on June 12. In total, the settlements include approximately $3.6 billion in fines, $420 million in civil penalties and approximately $467 million in prejudgment interest. The move is still awaiting court approval.
In bankruptcy, claims are given priority. Secured creditors are paid first, then unsecured creditors follow, which often includes fines and penalties for government agencies like the SEC. In this case, the SEC must wait until creditors and other secured creditors are paid before receiving any funds.
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In the year In 2023, the agency accused Terraform Labs and its founder, Do Kwon, of selling unregistered securities and defrauding investors as part of the collapse of the Terra ecosystem. Kwon is being held in Montenegro, and the United States and South Korea are seeking his extradition.
Despite the low likelihood of recovering funds, the SEC described the settlement as a fair punishment for “one of the largest securities frauds in American history.” In a June 12 letter to U.S. District Judge Jed Rakoff, the agency said:
“If approved, the proposed ruling will send an unequivocal deterrent message not only to those involved in shameful misconduct, but also to those seeking to evade the requirements of federal securities laws by framing new standards of behavior for fallen crypto assets. According to federal securities laws.”
According to the Journal, fines and penalties collected by the agency in 2023 totaled $2.8 billion.
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