Terraform Labs to Pay $4.47B to Settle SEC Fraud Charges Over UST Collapse

One of the largest collapses in the history of crypto is finally getting closure. Terraform Labs, the company behind now-defunct UST stablecoin, has agreed to pay the U.S. Securities and Exchange Commission $4.47 billion.

Terraform Labs, the company behind the collapsed UST stablecoin, has agreed to pay the U.S. Securities and Exchange Commission $4.47 billion to settle civil fraud charges.

The SEC on Friday asked a federal judge in the United States Southern District of New York to approve the settlement, which was reached two months after a unanimous jury found Terraform and its co-founder Do Kwon liable for civil fraud.

The charges stemmed from allegations that Terraform misled investors and engaged in practices that ultimately led to the loss of billions of dollars in investors' funds.

According to a court filing, Terraform will pay roughly $3.59 billion plus interest, along with a $420 million penalty. Kwon will pay $204.3 million, including $110 million in disgorgement, interest and an $80 million penalty.

The settlement is one of the largest ever levied by the SEC in a crypto case. However, it is just a fraction of the losses incurred by investors when UST collapsed in May 2022.

At the time, Terraform's native token, LUNA, and UST were inextricably linked in a mechanism designed to keep UST pegged to the U.S. dollar. But a sharp drop in the price of LUNA caused UST to lose its peg, setting off a downward price spiral and run on deposits that wiped out nearly $50 billion of UST's market cap in a matter of days.

The collapse was so impactful that two years on, Terra-induced PTSD continues to sound the alarms on any project that offers double-digit yields.

But the astronomical $4.4 billion settlement has also raised questions about whether Terraform even has the money to pay off the debt.