SEC's $4.47B Terraform Settlement Yields Little for Agency as Creditors Prioritized

U.S. Bankruptcy Judge Brendan Shannon has approved Terraform Labs' liquidation plan, marking the final step in the company's bankruptcy proceedings following a $4.47 billion settlement with the U.S. Securities and Exchange Commission (SEC). The ruling, issued on September 20, 2024, in Wilmington, Delaware, allows Terraform to wind down operations after a jury in April 2024 found the firm and its founder, Do Kwon, liable for defrauding investors in the collapse of the TerraUSD and Luna tokens, which wiped out an estimated $40 billion in value in 2022 Terraform Labs approved bankruptcy wind-down^[1]. The settlement requires Terraform to prioritize compensating crypto purchasers and stakeholders, with the SEC's payments contingent on full distribution to creditors SEC v. Terraform Labs PTE, Ltd. and Do Hyeong Kwon^[2].

The SEC's settlement includes $4.47 billion in disgorgement, prejudgment interest, and civil penalties. However, the agency will likely receive little to nothing from the agreement, as Terraform's remaining assets-estimated at $184.5 million to $442.2 million-will be allocated to creditors and harmed investors through a liquidating trust Court Approves Terraform’s Bankruptcy After SEC Settlement^[3]. The company acknowledged it is "impossible to estimate" the total value of eligible crypto losses during the liquidation, underscoring the complexity of distributing funds amid uncertain claims Terraform Labs secures court approval to wind-down^[4].

Do Kwon's liabilities under the settlement include transferring at least $204.3 million in assets to the bankruptcy estate, comprising $7 million in cash, crypto assets from the Luna Foundation Guard, and his PYTH token holdings SEC v. Terraform Labs PTE, Ltd. and Do Hyeong Kwon^[5]. These assets will be liquidated to satisfy the SEC's penalties and distributed to creditors. Kwon, who faces criminal charges in the U.S. and South Korea, remains in Montenegro awaiting extradition decisions and has denied wrongdoing Court Approves Terraform’s Bankruptcy After SEC Settlement^[6].

The court-approved liquidation plan, overseen by liquidating trustee Todd Snyder, establishes a structured process for creditors to file claims. The official claims portal (claims.terra.money) opened in late March 2025, with a deadline of May 16, 2025, for submissions. Phishing attempts targeting creditors via fake Kroll email domains (e.g., ra-kroll.com) have been reported, prompting warnings from the SEC and Terraform's bankruptcy administrators SEC v. Terraform Labs PTE, Ltd. and Do Hyeong Kwon^[7].

The collapse of TerraUSD and Luna in May 2022 triggered a broader crypto market crash, with ripple effects including a $1.3 billion lawsuit from Three Arrows Capital (3AC) liquidators. The hedge fund's lawsuit accuses Terraform of market manipulation, claiming the company artificially inflated token prices while encouraging 3AC to invest in the Terra ecosystem Court Approves Terraform’s Bankruptcy After SEC Settlement^[8]. At its peak, 3AC held $462 million in LUNA, which plummeted to $2,700 post-collapse Court Approves Terraform’s Bankruptcy After SEC Settlement^[9].

With the court's approval, Terraform's liquidation moves forward as a "welcome alternative" to prolonged litigation, according to Judge Shannon. The process will determine final payouts to stakeholders, though many remain skeptical about the adequacy of the proposed distributions given the scale of losses. The bankruptcy estate's ability to pursue additional claims against third parties may influence the final recovery rate for creditors.