SEC case against Terraform Labs lead account for over 50% of its record year financial remedies

The Securities Exchange Commission (SEC) obtained orders for $8.2 billion in remedies for the 2024 fiscal year, a record high for the regulatory agency. This is a 67% increase from the $4.9 billion in financial penalties that it collected in 2023.

According to the official press release, the regulator filed 583 enforcement actions during the year, a 23% decline from the previous year. Most enforcement actions (431) were stand-alone, while 93 were follow-on administrative proceedings based on civil injunctions, orders, and criminal prosecutions. 59 enforcement actions targeted issuers who did not make their compulsory filings on time.

The massive increase in financial remedies, despite the decline in enforcement action, owes much to SEC enforcement action against crypto entities, particularly Terraform Labs (TFL) and its co-founder Do Kwon. In this case, TFL settled charges for $4.5 billion, while SEC also got an order against Kwon to pay $200 million in penalties.

Speaking on this, SEC Chair Gary Gensler noted that the SEC’s proactiveness enabled it to pursue wrongdoers and protect investors.

Gensler said:

“The Division of Enforcement is a steadfast cop on the beat, following the facts and the law wherever they lead to hold wrongdoers accountable. As demonstrated by this year’s results, the Division helps promote the integrity of our capital markets to benefit investors and issuers alike.”

Beyond the financial remedies, 2024 was also a record year in terms of complaints and reports, with the SEC receiving 45,130 tips, complaints, and referrals, the highest number ever. The regulator also obtained orders banning 124 individuals from serving as officers or directors of public companies, the second-highest number in a decade, and distributed $345 million to harmed investors.

50% of SEC major fraud cases were crypto-related

Meanwhile, two of the four major fraud cases that the SEC charged in 2024 involved digital assets. One is the Hyperfund crypto asset pyramid scheme, which raised over $1.7 billion from investors globally. SEC claimed that it had charged two individuals, Xue Lee, aka Sam Lee, and Brenda Chunga, aka Bitcoin Beautee, for their involvement in the scam.

The regulator also charged NovaTech Ltd and its founders, Cynthia and Eddy Pention, for a multilevel marketing and crypto scheme that raised over $650 million from more than 200,000 investors globally. Other promoters of the scheme were charged alongside the two for their involvement.

Beyond these two cases, the agency noted that emerging technologies pose major risks for fraudulent activities, highlighting how bad actors used everything from artificial intelligence to fake crypto platforms to defraud victims. It specifically mentioned Silvergate Bank and Barnbrige DAO, noting that it settled charges against the two.

Will the SEC recover the $4.5 billion from Terraform Labs?

Despite the TFL judgment accounting for about 56% of the SEC financial remedies for 2024, the regulator is unlikely to get any of the funds. TFL is also bankrupt and has the court’s go-ahead to wind down. There are no signs that the company, which is behind one of the biggest financial collapses ever, has the funds to pay off the losses to investors and penalties to regulators. The SEC also agreed to be paid only after the company satisfies all claims in its bankruptcy winddown.

Several of the Terra mainnet services have already been shut down, including the Shuttle Bridge interface, which the company closed in early November, burning all the tokens in the Shuttle Bridge wallets. The team also plans to shut down Enterprise DAO and Warp Protocol, two Cosmos-based DeFi protocols powered by Terra, by December 31, 2024.

Meanwhile, retail investors who lost billions to the UST and LUNA collapse continue to hope for a community-led revival. Terra Luna Classic (LUNC) ‘s community on Discord recently approved a proposal to transfer the CoinMarketCap dashboard account access for the token to Allnodes, the top validator of Terra Classic’s mainnet.

However, they voted overwhelmingly against a proposal by Cosmos-based developer team BLV Labs asking the community to approve $5,000 in LUNC for its work on the Terra Classic blockchain. The developer worked on the use Oracle module to calculate and update the minimum deposit required for creating a governance proposal. According to the community, the developer has not deployed the feature on the testnet and mainnet and must finish the work to get paid.

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