Terraform Labs and its co-founder Do Kwon have agreed to settle the civil fraud case with the U.S. Securities and Exchange Commission (SEC). The SEC had accused Terraform and Kwon of deceiving investors about the stability of their products, resulting in the collapse of their $40 billion ecosystem in May 2022 ¹.

A recent court filing confirmed that all parties agreed to settle the case, leading to the cancellation of priorly scheduled oral arguments. The parties are supposed to file the settlement documentation by June 12 and present it before Judge Jed S. Rakoff ².

The news of the settlement had a significant impact on the market, specifically on the LUNA token of Terraform, which witnessed a surge of up to 38%—the highest it has surged since April 12. This surge in the LUNA token’s value indicates investor optimism after the settlement announcement ³.

Although there is progress in settling the civil case with the SEC, the legal challenges of Do Kwon aren’t over yet. Currently, Kwon is out on bail in Montenegro, awaiting an extradition to either the U.S. or South Korea, where he is alleged to have additional criminal charges ⁴.

The SEC initially proposed to give a heavy $5.3 billion penalty for resolving the fraud case, which would also mark as the most substantial fine on a crypto project. Amidst the bankruptcy proceedings, Terraform Labs has contested the penalty, demanding a more appropriate civil fine since its remaining assets are approximately $150 million ⁵.

As the legal battle continues, Kwon’s future remains uncertain, with crucial repercussions for him and the broader cryptocurrency market. The collapse of TerraUSD and Luna, a more traditional token that fluctuated in value but was closely linked to TerraUSD, roiled cryptocurrency markets in May 2022 ⁴.

The SEC estimated that investors in the two cryptocurrencies lost more than $40 billion combined when the TerraUSD peg to the dollar could not be maintained ⁴. The regulator had asked Rakoff in court filings to make Kwon and Terraform Labs relinquish $5.3 billion in what it called ill-gotten gains from sales of the stablecoin ⁴.

The SEC also sought a $420 million fine on the company and a $100 million fine for Kwon, and for both to be banned from dealing in "crypto asset securities" ⁴. The cryptocurrency entrepreneur and his company had argued that the maximum fines allowed were $3.5 million on Terraform Labs and less than $1 million for Kwon ⁴.

Kwon faces related criminal charges in the U.S. and his native South Korea. He has denied wrongdoing. Since his arrest in March 2023, he has been awaiting extradition from Montenegro, where authorities have gone back and forth on where he should be sent ⁴.