Terraform Labs is to pay a $4.5 billion settlement after a jury found the company liable for a crypto fraud that spanned years.

The Singapore-based crypto firm orchestrated a multi-billion-dollar fraud involving crypto asset securities that led to huge investor losses when the scheme unravelled in May 2022.

The company's boss Do Kwon, will contribute more than $200 million to the settlement.

The US Securities and Exchange Commission (SEC) said that a nine-day jury trial in April exposed the "extent of the defendants’ lies" about the false use of the Terraform blockchain to settle transactions and the stability of its crypto asset security, UST.

Following the trial, Terraform will be wound down, with assets to be distributed amongst investor victims and creditors in bankruptcy.

Last February, Terraform and its chief executive were charged by US regulators for the fraud scheme.

Kwon defrauded investors in a scheme involving an algorithmic stablecoin and other crypto asset securities.

From April 2018, until the scheme’s collapse in May 2022, Terraform and Kwon raised billions of dollars from investors by offering and selling an “interconnected suite of crypto asset securities”, many in unregistered transactions.

Speaking about the recent jury trial, SEC chair Gary Gensler said: “This case affirms what court after court has said: the economic realities of a product—not the labels, the spin, or the hype—determine whether it is a security under the securities laws. Terraform and Do Kwon’s fraudulent activities caused devastating losses for investors, in some cases wiping out entire life savings."

He went on to say that Terraform and Kwon fought the SEC's efforts to investigate, taking it all the way to the Supreme Court.

“Do Kwon and Terra orchestrated one of the largest securities frauds in US history by, among other things, falsely claiming that they had achieved the Holy Grail of crypto: a non-illicit use case," said Gurbir S. Grewal, director of the SEC’s Division of Enforcement. "As the jury found, that was a lie, as was their claim of creating an ‘algorithmic stablecoin.’"

He continued: "In the end, all they succeeded in doing was lying to investors, wiping out tens of billions of dollars in market value, and creating a trail of victims. Today’s multi-billion dollar settlement not only holds them accountable and prioritises the return of hundreds of millions of dollars to harmed investors, but also makes clear that, despite the vast resources that crypto asset defendants deploy against us, the dedicated staff of the Division of Enforcement will not stop until they achieve justice for the victims of these breathtaking frauds.”

The SEC charged Terraform and Kwon in US District Court for the Southern District of New York on February 16, 2023, with securities fraud and for offering and selling securities in unregistered transactions.

On December 28, 2023, the District Court found Terraform and Kwon liable for offering and selling crypto asset securities in unregistered transactions.

On January 21, 2024, Terraform filed a voluntary Chapter 11 petition in the US Bankruptcy Court for the District of Delaware.

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