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SEC to Get Fraction of Terraform Settlement

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SEC to Get Fraction of Terraform Settlement

The United States Securities and Exchange Commission (SEC) may find itself receiving only a small portion of the multibillion-dollar settlement it reached with Terraform Labs. Reports from The Wall Street Journal indicate that as of January, when Terraform Labs filed for bankruptcy, the company possessed assets valued at $430.1 million compared to liabilities amounting to $450.9 million. This financial state casts doubt on the SEC’s ability to collect the full settlement.

Terraform Labs had agreed to a settlement involving payments totaling around $4.47 billion, which includes disgorgement fines of approximately $3.6 billion, a civil penalty of $420 million, and nearly $467 million in prejudgment interest. This agreement was revealed on June 12. It’s important to note that the settlement is still subject to court approval and has not yet been finalized.

In bankruptcy proceedings, the order in which claims are paid is crucial. Secured creditors are usually given priority, being paid first before any funds can go to unsecured creditors. This latter group often includes fines and penalties owed to government entities such as the SEC. Therefore, in this scenario, the SEC will have to wait in line behind lenders and other secured creditors to receive its share of the funds, if any remain.

The SEC took legal action against Terraform Labs and its founder, Do Kwon, in 2023, accusing them of selling unregistered securities and defrauding investors within the Terra ecosystem. Following these allegations, Kwon was apprehended in Montenegro, and both the United States and South Korea are seeking his extradition to face charges.

Despite the unlikelihood of securing the full amount, the SEC has reportedly characterized the settlement as a significant penalty directed at “one of the largest securities frauds in U.S. history.” They expressed this sentiment in a letter to U.S. District Judge Jed Rakoff on June 12, stating that if the court approves the judgment, it will send a strong deterrent message. The agency emphasized that it would alert not just those who engage in explicit misconduct but also those attempting to bypass federal securities laws by developing new behavioral standards for crypto assets.

The SEC’s decision to pursue such a large settlement underscores the agency’s commitment to maintaining the integrity of federal securities laws, especially in the rapidly evolving cryptocurrency sector. The settlement is intended to set a precedent that even innovative financial instruments like crypto assets are not beyond regulatory scrutiny and enforcement.

This case highlights the financial vulnerabilities that can be associated with companies operating within the cryptocurrency space. The significant discrepancy between Terraform Labs’ assets and liabilities sheds light on the financial instability that can underpin such firms, raising questions about their long-term viability and investor protection.

According to reports, the total fines and penalties collected by the SEC in 2023 amounted to $2.8 billion. This case against Terraform Labs significantly contributes to the agency’s enforcement actions for the year, illustrating its active role in regulating the complex and often opaque cryptocurrency landscape.

21 thoughts on “SEC to Get Fraction of Terraform Settlement

  1. While the full collection might be uncertain, the SEC’s actions are crucial in setting market standards.

  2. Wow, this is plain embarrassing for the SEC. How are they supposed to enforce laws when they cant even collect on settlements?

  3. Bravo to the SEC for this groundbreaking settlement. It highlights the importance of regulation in emerging markets! 🌟📈

  4. Big moves by the SEC! This is how you enforce regulations in a rapidly changing financial landscape.

  5. Impressive work by the SEC to hold Terraform Labs accountable. This is exactly the level of oversight we need.

  6. Why does the SEC even bother with settlements they can’t enforce? Waste of time and taxpayer money. 🤬

  7. Ensuring firms in the cryptocurrency space are financially stable is crucial, and the SEC is stepping up!

  8. Regardless of the payout, this settlement marks a massive win for regulatory oversight in crypto! 🔍🏆

  9. A step in the right direction for safeguarding the future of cryptocurrency investments! 💸🔍

  10. So much for setting a ‘deterrent message.’ If Terraform Labs doesn’t pay up, all this noise is for nothing.

  11. Even though they might not collect the full settlement, the message is clear: the SEC means business!

  12. The crackdown by the SEC shows how critical clear regulations are for crypto assets.

  13. This is precisely the tough stance we need to ensure ethical conduct in financial markets. Good job, SEC!

  14. The SEC is always late to the party and then can’t get the job done. Not surprised they’re struggling to collect.

  15. Kudos to the SEC for pushing boundaries and ensuring the crypto market stays within legal frameworks. 🌟⚖️

  16. This is exactly why people dont trust the SEC. They make big promises and fail to deliver results.

  17. What good is a multibillion-dollar settlement if theyre not going to see the money? The SEC needs better strategies.

  18. Another example of the SEC going after the wrong people and ending up with nothing. When will they learn? 🙄

  19. Great to see the SEC taking firm action against fraudulent activities in the market!

  20. Secured creditors get paid first, SEC gets leftovers. Looks like they’ll be waiting a long time for that money. 😂

  21. Proud of the SEC for spearheading important regulatory measures in the cryptocurrency world.

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