In a landmark settlement, Terraform Labs has agreed to pay $4.47 billion in fines following a settlement with the U.S. Securities and Exchange Commission (SEC) concerning its algorithmic stablecoin, Terra USD (UST), which experienced a dramatic collapse in 2022.

The SEC submitted a "proposed final consent judgment" on Wednesday, requesting Judge Jed Rakoff of the U.S. District Court for the Southern District of New York to approve the settlement plan. The proposed judgment addresses the gravity of the fraud by imposing significant remedial, punitive, and deterrent measures, including a multi-billion dollar judgment against Terraform and its co-founder Do Kwon.

"The proposed consent judgment both addresses the magnitude of this fraud by imposing significant remedial, punitive, and deterrent remedies, including a multi-billion dollar judgment against Defendants, and provides for meaningful and speedy recovery for investor victims that collectively lost billions when Defendants’ scheme collapsed," the SEC stated in a court filing. "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 terms of the proposed judgment include Terraform paying $3.58 billion in disgorgement and $420 million in civil penalties. Additionally, Do Kwon would be barred from serving as an officer or director of any public company. Kwon is also required to contribute approximately $204 million to a "Terraform bankruptcy estate" designated for distribution to affected investors.

This settlement follows the SEC's charges in February 2023, accusing Terraform and Kwon of defrauding and misleading investors. The SEC alleged that the collapse of Terra USD (UST) in 2022 caused significant financial losses. Although both parties had previously contested the fine amounts, with Terraform and Kwon's legal team suggesting fines closer to $1 million and the SEC proposing $5.3 billion, the final agreement settled at $4.47 billion.

In April, a jury found Terraform and Kwon liable for civil fraud, determining that they had misled investors and violated federal securities laws by engaging in fraudulent activities related to the buying and selling of Terraform securities. Judge Rakoff had earlier granted summary judgment to the SEC, affirming that Terraform and Kwon offered and sold unregistered securities.

This significant resolution highlights the SEC's commitment to enforcing federal securities laws and protecting investors from fraudulent schemes within the rapidly evolving cryptocurrency market.