The US District Court for the Southern District of New York has issued a final judgment against Terraform Labs and its co-founder Do Kwon in a highly publicized case brought by the Securities and Exchange Commission (SEC).

The court's ruling declares the defendants responsible for multiple violations of securities laws and imposes stringent penalties and constraints on their future activities. These penalties total approximately $4.5 billion, comprising $3.6 billion in disgorgement, $467 million in prejudgment interest, and $420 million in civil penalties.

As part of the judgment issued on June 12, Kwon shares liability for $110.0 million of the disgorgement amount and $14.3 million in prejudgment interest. Additionally, Kwon is required to transfer various assets, including ownership interests in PYTH tokens and other holdings, to the Terraform bankruptcy estate. These assets will be used to settle the financial penalties and will be distributed to affected investors through a liquidating trust.

The court allows Terraform Labs to treat the amount owed as an unsecured claim in its bankruptcy proceedings, meaning the SEC will receive these funds as part of the distribution when Terraform Labs’ Chapter 11 plan is finalized.

The SEC is authorized to enforce the court's judgment using all available collection methods, including civil contempt if Kwon fails to comply with the transfer orders within 30 days of the judgment.

Separate from Terraform Labs’ payments, Kwon must also pay $204.3 million in additional remedies, including $110 million in disgorgement, $14.3 million in prejudgment interest, and an extra $80 million in civil penalties.

The court order prohibits Terraform Labs and Kwon from violating anti-fraud provisions under Section 10(b) of the Exchange Act and Section 17(a) of the Securities Act. It also permanently bars them from engaging in transactions involving unregistered securities, crypto asset securities transactions, or inducing others to engage in such transactions, among other related restrictions.

While these restrictions are in place, Terraform Labs is permitted to undertake specific transactions related to its bankruptcy case. This includes the disposal of crypto assets within its bankruptcy estate with court approval, compliance with requirements to destroy wallet keys and burn tokens, and enabling third parties to withdraw, unstake, and unwind positions on its platforms.

Additionally, the court permanently prohibits Kwon from serving as an officer or director of any issuer with a registered class of securities or reporting obligations.

The SEC initiated its case against Terraform Labs and Kwon in February 2023, alleging fraudulent activities targeting crypto investors, particularly involving the collapsed Terra USD (UST) stablecoin. The courts found the defendants liable for fraud in April of the current year.