Terraform Labs (TFL), the company behind the collapsed TerraUSD stablecoin, and its co-founder Do Kwon have agreed to pay over $4.5 billion to settle a civil lawsuit filed by the U.S. Securities and Exchange Commission (SEC) over allegations of orchestrating a multi-billion dollar crypto asset securities fraud. The proposed settlement, filed with a New York federal court on Tuesday, awaits judicial approval.

The SEC's lawsuit, initiated in 2023, alleged that TFL and Do Kwon engaged in deceptive practices in marketing and selling TerraUSD (UST) and Luna. This led to their collapse in May 2022, which wiped out approximately $40 billion in investor assets. A jury found the firm and Kwon liable on April 5.

TFL is expected to pay around $3.59 billion in disgorgement plus interest and an additional $420 million penalty, for a total of $4.47 billion. Kwon will pay roughly $204.3 million, including $110 million in disgorgement and interest and $80 million in penalties. He will be required to transfer all the funds to the Terraform bankruptcy estate for distribution to investors.

If approved, this would bring the total settlement amount to slightly over $4.6 billion, and if approved, it would be one of the largest ever secured by the SEC. The agency initially sought $5.3 billion in penalties. On April 26, TFL countered with a $1 million proposal.

In addition to the financial penalties, both TFL and Kwon would be permanently barred from participating in the issuance, purchase, offer, or sale of any crypto asset securities.

Kwon still faces potential criminal charges related to the Terra-Luna collapse in the U.S. and South Korea. His immediate future remains uncertain as courts in Montenegro, where he was arrested a year ago and released in March this year, grapple with extradition requests from both countries.

Kwon's legal team has repeatedly appealed extradition decisions, citing procedural issues and errors in lower court filings. The high court in Montenegro is deliberating whether to extradite Kwon to his native South Korea or the U.S. to face charges.

Following the announcement of the settlement, Chris Amani, the current CEO of TFL, provided several key updates on X. Amani detailed the wind-down process, which includes a proposal to burn all of TFL's unvested Luna, with TFL also set to burn the remaining vested assets. He called on the community to take over ownership of the chain, noting that several teams and developers are interested in this transition.

TFL's products will continue running during the wind-down, and Pulsar Finance, Station Wallet, and Enterprise DAO will be put up for sale. Amani confirmed he will oversee the wind-down and provide updates once court approvals are obtained.

This seems to conclude a major legal battle and opens the door for community-led initiatives to potentially guide the future of TFL's products. The evolution of the Terra ecosystem remains to be seen.

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