The US Securities and Exchange Commission (SEC) has imposed the largest fine ever on a cryptocurrency project, with a staggering $5.3 billion fine against Do Kwon and Terraform Labs.
After an extensive investigation and a relatively brief two-week trial in New York, Kwon and Terraform were found guilty of fraud. They were accused of concealing significant risks in the trading scheme designed to ensure the survival of the UST stablecoin and the unsustainable 20% yield offered by Terraform’s Anchor lending platform. Kwon, who was arrested in Montenegro last year with a fake passport, did not attend the hearing. Kwon is currently awaiting extradition to the United States or his home country, South Korea.
Andrea Tosato, an assistant law professor at the University of Pennsylvania, said recent high-profile cases against Terra, Do Kwon and Ripple, with penalties reaching hundreds of millions or even billions of dollars, signal a change in the SEC’s strategy. “It appears the SEC is trying to send the message that the reward is not worth the risk,” Tosato said.
So what explains this aggressive turn by the SEC? Yuliya Guseva, a professor at Rutgers Law School, suggested it was likely a combination of factors. According to the expert, as the size of crypto projects grows, the potential for these projects to pay compensation also increases. But there is also a legal strategy of “terrorism” aimed at instilling fear in the industry to encourage compliance.
“This second approach suggests that the SEC may be strategic in its choices as it seeks to bring the crypto industry under securities law,” Guseva said. But Tosato added that this process “involves a degree of initiative that the SEC exercises within established legal frameworks.” While increasing the amount of fines levied on companies is certainly intended to send a message to others, Tosato doesn’t think the SEC is “particularly out of line compared to what they’ve done in other industries” when it comes to outright fraud and securities violations.
*This is not investment advice.
