Terraform Labs, a once-prominent player in the cryptocurrency industry, announced on 9 July its plans to sell four key businesses.
This is a part of a $4.5 billion settlement with the United States Securities and Exchange Commission (SEC).
The firm, which filed for bankruptcy under Chapter 11 in Delaware in January, is looking to maximise value for its creditors and other stakeholders as it winds down operations.
The businesses up for sale include Pulsar Finance, a portfolio monitoring platform acquired in November 2023; Station, a cryptographic wallet platform; Enterprise, a no-code management platform for decentralised autonomous organisations (DAOs), launched in November 2022; and Warp, a smart contract automation protocol with recent updates in February and March.
Despite its bankruptcy status, Terraform Labs continues to develop both Warp and Station.
SEC settlement and financial penalties
Last month, Terraform Labs reached a substantial $4.5 billion settlement with the SEC.
This settlement requires the firm to pay nearly $3.6 billion in compensations, a civil penalty of $420 million, and about $467 million in prejudgment interest.
The co-founder and former CEO of Terraform Labs, Do Kwon, is also personally accountable under this agreement.
Kwon has agreed to pay $110 million in compensations, $14.3 million in prejudgment interest, and a civil penalty of $80 million.
Furthermore, the settlement effectively bans both Kwon and Terraform from participating in the cryptocurrency sector and trading in crypto assets. This also includes all tokens within the Terra ecosystems.
The SEC also prohibited Kwon from serving as an officer or director of a public company.
He is required to pay $200 million to the Terraform bankruptcy estate, to be distributed to affected investors.
The SEC’s filing stated: “The proposed consent judgement both addresses the magnitude of this fraud by imposing significant remedial, punitive, and deterrent remedies, including a multi-billion-dollar judgement against defendants”.
This resolution concludes the SEC’s lawsuit filed in February 2023, which accused Terraform and Kwon of securities law violations and fraud.
Terraform Labs, known for developing Terra Luna Classic ($LUNC) and the algorithmic stablecoin TerraUSD ($UST), suffered a significant setback in May 2022.
This was when $UST lost its dollar peg, leading to a sharp decline in the value of both cryptocurrencies.
The company’s current token, Terra ($LUNA), has not recovered, recently trading at $0.37, a 98% drop from its peak of $18.87 in May 2022.
Allegations of misconduct
Recent allegations from cryptocurrency influencer Rasgard have brought additional scrutiny to Terraform Labs and Do Kwon.
On platform X, Rasgard accused Kwon of deceptive practices and manipulation during the Terra Luna crisis.
He claimed that Kwon orchestrated a secret deal with Jump Trading, which contributed to the initial loss of $UST’s peg in May 2021, and misled the public about the token’s ability to self-repair.
Rasgard also accused Terraform Labs of falsifying transactions on the Chai payment platform to simulate legitimate activity and revealed that Kwon had wagered $1 million on the stability of $UST and $LUNA prices.
The collapse worsened in 2022 when Anchor Protocol, a lending platform on Terra, reduced interest rates on stablecoin deposits. This then prompted a massive withdrawal by credit institutions and further destabilising $UST and $LUNA.
Following these events, Kwon allegedly transferred over 10,000 $BTC into a cold wallet, from which more than $100 million was reportedly withdrawn via a Swiss bank.
Rasgard also claimed Kwon moved around 40,000 $BTC from the burn wallet to secret wallets.
Kwon was subsequently arrested in Montenegro and faces multiple charges, including securities fraud, commodities fraud, wire fraud, and conspiracy.
He and his legal team are currently awaiting extradition to face trial.
