Singapore-based Terraform Labs and its founder, Do Kwon, have entered a preliminary agreement with the U.S. Securities and Exchange Commission (SEC) regarding allegations of misleading investors concerning TerraUSD before its collapse in 2022.

While the terms of the settlement remain undisclosed, court documents referenced by Reuters indicate that Terraform Labs and Kwon have tentatively reached an agreement, following a prior jury ruling that found them liable for civil fraud charges.

The SEC had accused Terraform Labs and Kwon of misleading investors in 2021 regarding the stability of TerraUSD, a stablecoin designed to maintain a value of $1. Additionally, the regulator alleged that Kwon and the firm falsely claimed that Terraform's blockchain was integrated into a popular Korean mobile payment application.

Opinions within the crypto community regarding the settlement's implications are mixed. Some foresee a positive impact on the price of Terra Classic's token (LUNC), while others are skeptical about the methods Terraform Labs will employ to reimburse investors.

Previously, the SEC had sought the forfeiture of $5.3 billion in alleged ill-gotten gains from stablecoin sales from Kwon and Terraform Labs, in addition to fines of $420 million for the company and $100 million for Kwon. The regulator also sought bans on dealing in "crypto asset securities."

Following the news of the tentative settlement, LUNC experienced a surge of over 9% to $0.00012, while the new token, LUNA, saw a gain of over 13%, according to CoinMarketCap.

The collapse of TerraUSD and Terra Classic in May 2022 caused significant disruption in cryptocurrency markets, with the SEC estimating investor losses exceeding $40 billion. Kwon and his company argued that the maximum fines should be $3.5 million for Terraform Labs and less than $1 million for the mastermind behind TerraUSD.

Kwon, who faces criminal charges in both the U.S. and South Korea, maintains his innocence. Despite being arrested in March 2023, he remains in Montenegro, awaiting extradition.