Terraform Labs Settles with SEC Amidst Crypto Fraud Concerns

The U.S. Securities and Exchange Commission (SEC) has created an information page for investors affected by Terraform Labs. The page aims to address inquiries about compensation following a recent settlement.

Last month, Terraform Labs agreed to a $4.47 billion settlement with the SEC. The settlement includes $3.58 billion in disgorgement and a $420 million civil penalty. Moreover, co-founder Do Kwon is barred from becoming an officer or director of any public company.

The SEC clarified that they would not receive any payments until investors and creditors are compensated in the ongoing bankruptcy case. The confirmation hearing and commencement date for the Chapter 11 plan are expected in the autumn.

The SEC initially charged Terraform Labs and Do Kwon in February 2023 over the collapse of the algorithmic stablecoin Terra USD (UST), which led to significant financial losses. UST maintained its price stability through algorithms linked to Luna, a governance token.

In April, a jury concluded that both Terraform Labs and Kwon had misled investors, resulting in civil fraud liability.

CFTC's Crypto Fraud Warnings

The Commodity Futures Trading Commission (CFTC) issued a warning to customers about "follow-on frauds." Melanie Devoe, director of the CFTC's Office of Customer Education and Outreach, described these as "relationship confidence frauds" or "pig butchering frauds."

Such schemes often involve secondary scams targeting individuals who have already suffered losses, sometimes coercing them into further financial entanglements.

The CFTC noted that recovering funds becomes challenging when traditional currencies are converted into cryptocurrencies like Bitcoin (BTC) or Tether (USDT).

The agency advises against sending cryptocurrencies to individuals met solely online. It also recommends verifying whether a cryptocurrency platform is registered with the Financial Crimes Enforcement Network before trading.

Ongoing Regulatory Efforts

Both the SEC and CFTC continue to pursue charges within the crypto industry.

CFTC Chair Rostin Behnam highlighted that half of the agency's enforcement actions in the last fiscal year involved cryptocurrencies.

He expressed concern about the resource allocation and potential risks due to the lack of direct regulation and funding.