Crypto startup Terraform Labs and its CEO, Do Kwon, are reportedly close to reaching a settlement with the U.S. Securities and Exchange Commission (SEC) over allegations of fraud. Legal representatives disclosed a tentative agreement during a recent phone conference with Judge Jed S. Rakoff, with final terms expected to be ready for court review by June 12, 2024.

The legal trouble for Kwon and Terraform Labs arose when the SEC accused them of deceiving investors, particularly in the marketing and sale of the algorithmic stablecoin Terra USD (UST) and associated tokens. The SEC alleged that they offered these digital assets without proper registration and made false claims about their stability and investment potential.

The decline of Terraforms in May 2022 led to a significant crypto market crash, impacting numerous cryptocurrency companies and investors. The SEC is seeking a substantial fine of around $5.3 billion, while Terraform Labs has proposed a much lower penalty of $1 million and has contested disgorgement, especially from entities like the Luna Foundation Guard not explicitly named in the SEC suit.

Furthermore, the SEC has suggested barring Kwon from holding positions as an officer or director in any entity issuing securities and requiring full disclosure of his financial holdings. Kwon has objected to this level of scrutiny, arguing that it would violate his Fifth Amendment rights.

In another setback, Kwon was arrested in Montenegro in March 2023 for falsifying travel documents. Despite being released on bail, the U.S. is pursuing his extradition, with potential charges awaiting him in Montenegro.