US SEC Seeks $5.3 Billion Fine From Terra’s Do Kwon

The United States is seeking a huge fine against Do Kwon, the disgraced founder of collapsed crypto company Terraform Labs, in order to conclude a civil fraud trial.

Coindesk reported that the US Securities and Exchange Commission (SEC) has asked a New York court to impose $5.3 billion in fines on Terraform Labs and co-founder Do Kwon over the 2022 collapse of the $40 billion digital asset project – which included the stablecoin Terra and its sister token Luna.

The trail against Do Kwon and Terraform Labs had begun in New York on 26 March, and concluded earlier this month when both were found liable on civil fraud charges.

Huge fine

In February 2023 the US Securities and Exchange Commission (SEC) had charged Singapore-based Terraform Labs PTE Ltd and Do Kwon with orchestrating a multi-billion dollar crypto asset securities fraud.

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

Now the civil fraud trial has concluded and the Manhattan jury concluded 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.

According to Coindesk, the SEC’s motion for final judgement requested that Terraform Labs and Kwon pay $4.74 billion in disgorgement and prejudgment interest, as well as a collective $520 million in civil penalties: $420 million from Terraform Labs and $100 million from Kwon’s own personal pocket.

In an accompanying memorandum of law, the SEC attempted to justify the total amount to the court by saying that Kwon and Terraform Labs made “over $4 billion in ill-gotten gains (and likely much more) from their illegal conduct.”

No remorse

The SEC added that the fine amount represented a “conservative” but “reasonable approximation” of Terraform and Kwon’s “ill-gotten gains.”

In addition to the huge fine, the SEC is also reportedly seeking injunctions preventing Kwon and Terraform Labs from committing further securities violations, buying or selling “any crypto asset security,” as well as an officer-and-director ban on Do Kwon, which would ban him from ever serving as an officer or director at an SEC-reporting public company.

The SEC said such measures were necessary to deter future violations, as “defendants have not shown remorse for their conduct, nor can there be any doubt that they are in position where additional violations are not only possible but likely are already occurring.”

Extradition court case

The Manhattan trial had taken place while Do Kwon remained 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.

Do Kwon’s attorney, Goran Rodic, has previously told CoinDesk that the extradition was now final, and neither the US nor Kwon could further appeal the decision.

There is no timeline yet for when he might be extradited, he reportedly added.

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 possible extradition.