United

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April

Terra

In a significant development in the ongoing legal battle between the United States Securities and Exchange Commission (SEC) and Terraform Labs, a jury has found the blockchain protocol and its co-founder Do Kwon <a href="https://bitcoinist.com/us-jury-deems-do-kwon-terraform-liable-for-fraud/" target="_blank" rel="noopener ">liable </a>for civil fraud over the crash of the Terra ecosystem in 2022.&nbsp; 
In response, the SEC has filed a <a href="https://storage.courtlistener.com/recap/gov.uscourts.nysd.594150/gov.uscourts.nysd.594150.231.0.pdf" target="_blank" rel="noopener nofollow">motion </a>seeking billions of dollars in disgorgement and civil penalties against the defendants. 
<h2 id="sec-scores-victory-as-jury-finds-terraform-labs-and-do-kwon-guilty">SEC Scores Victory As Jury Finds Terraform Labs And Do Kwon Guilty</h2> 
The SEC’s initial <a href="https://bitcoinist.com/sec-sue-terraform-labs/" target="_blank" rel="noopener ">lawsuit</a>, filed in February 2023, accused Terraform Labs and Do Kwon of orchestrating a large-scale crypto scam involving the sale of various digital assets, particularly LUNA and the algorithmic stablecoin Terra USD (UST).&nbsp; 
Following the recent verdict in the civil case, the jury has determined that the defendants are indeed responsible for fraud, providing the SEC with a significant boost in its ongoing efforts to <a href="https://bitcoinist.com/terraform-labs-in-the-hot-seat-trial-begins/" target="_blank" rel="noopener ">crack down </a>on fraudulent activities within the digital asset industry. 
According to the SEC’s motion filed on April 5, 2024, the jury returned a verdict in favor of the SEC on all counts. The SEC is now seeking relief: an injunction against Terraform Labs and <a href="https://bitcoinist.com/terraform-labs-accuses-sec-of-government-overreach/" target="_blank" rel="noopener ">Do Kwon</a> to prevent further violations of the securities laws and joint and several disgorgements of around $4 billion. 
In addition, the SEC is seeking $545 million in prejudgment interest, a civil penalty of $420 million for Terraform Labs and $100 million for Do Kwon, a conduct-based injunction against the defendants, an officer and director bar against Do Kwon, and a declaration that the fraud-related monetary sanctions imposed on Terraform Labs are nondischargeable in bankruptcy. 
<h2 id="divergent-views-on-remedies">Divergent Views On Remedies</h2> 
The SEC and the defendants, Terraform Labs and Do Kwon, have submitted briefs outlining their proposed remedies in the civil case.&nbsp; 
Terraform Labs has <a href="https://storage.courtlistener.com/recap/gov.uscourts.nysd.594150/gov.uscourts.nysd.594150.235.0.pdf" target="_blank" rel="noopener nofollow">sought </a>a maximum civil penalty of $3.5 million, while Do Kwon has requested a penalty of $800,000.&nbsp; 
However, the SEC’s motion also seeks a conduct-based injunction, prohibiting Terraform Labs from participating in <a href="https://bitcoinist.com/terraform-labs-166m-payment-under-sec-investigation/" target="_blank" rel="noopener ">crypto asset transactions</a> and engaging in activities to induce such transactions. 
While the defendants argue against injunctive relief and disgorgement, Terraform Labs maintains that the SEC must meet a “higher burden of proof” to obtain a conduct-based injunction, as it would restrict legally permissible conduct.&nbsp; 
The defense asserts that injunctive relief and disgorgement should not be granted, and any civil penalty should be determined based on the SEC’s <a href="https://bitcoinist.com/terraform-labs-files-for-bankruptcy-in-the-us/" target="_blank" rel="noopener ">evidence </a>of “domestic token sales violations.” 
As the case progresses, the court’s decision on the SEC’s motion for penalties will have far-reaching implications for Terraform Labs, Do Kwon, and the wider digital asset industry. 
<img loading="lazy" decoding="async" class="size-medium" src="https://www.tradingview.com/x/8LKtGis2/" alt="Terraform Labs" width="1814" height="858"> 
As the market rebounds from a significant correction, the protocol’s native token, Luna Classic (LUNC), has experienced a notable price drop of over 25% in the past month alone.&nbsp; 
However, a modest recovery of 2% in LUNC’s price over the last 24 hours, bringing its current trading price to $0.0001128. 
Featured image from Shutterstock, chart from TradingView.com

Terraform Labs And Do Kwon Face $5.3B Penalties In SEC Fraud Case

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