Terraform Labs has agreed to pay a staggering $4.47 billion in fines to settle charges with the U.S. Securities and Exchange Commission (SEC) related to its algorithmic stablecoin, Terra USD (UST), which infamously collapsed in 2022. The SEC filed a proposed final consent judgment on Wednesday, seeking approval from Judge Jed Rakoff of the U.S. District Court for the Southern District of New York.

The settlement marks a significant milestone in the regulatory saga, which began in February 2023 when the SEC charged Terraform and its co-founder, Do Kwon, with defrauding and misleading investors. The agency alleged that Terraform violated federal securities laws by engaging in fraud connected to the buying and selling of its securities.

Under the proposed judgment, Terraform will pay $3.58 billion in disgorgement, a $420 million civil penalty, and will be required to block Kwon from serving as an officer or director of any public company. Additionally, Kwon will be liable for approximately $204 million, which will be allocated to a "Terraform bankruptcy estate" for distribution to harmed investors.

The SEC hailed the settlement as a significant achievement, stating that it "addresses the magnitude of this fraud by imposing significant remedial, punitive, and deterrent remedies...and provides for meaningful and speedy recovery for investor victims." The agency emphasized that the proposed judgment will send a strong deterrent message to those who engage in fraudulent activities and seek to evade federal securities laws.

The settlement comes after a tumultuous legal battle, during which both sides argued over the fine amounts. Terraform and Kwon's lawyers initially suggested fines should be closer to $1 million, while the SEC proposed a significantly higher amount of $5.3 billion.

In April, a jury found Terraform and Kwon liable for civil fraud, upholding the SEC's claims that they violated federal securities laws by engaging in fraud connected to the buying and selling of Terraform securities. Judge Rakoff had previously granted summary judgment to the SEC, ruling that Terraform and Kwon offered and sold unregistered securities.

The Terraform Labs spokesperson declined to comment on the settlement. The proposed judgment is pending approval from Judge Rakoff, and its implications will be closely watched by the cryptocurrency and regulatory communities.