Crypto Firm and Founder Settle Fraud Charges for $4.5 Billion
A crypto firm agreed to settle SEC claims for "intentionally and recklessly orchestrating one of the largest securities frauds in U.S. history." The crypto firm and its founder agreed to pay $4.5 billion to settle the fraud claims.
In February 2023, the SEC filed a Complaint in the US District Court for the Southern District of New York charging the crypto firm and its Chief Executive with "offer[ing] and sell[ing] crypto asset securities in unregistered transactions and perpetrat[ing] a fraudulent scheme that led to the loss of at least $40 billion of market value." In its letter requesting approval of settlement, the SEC described "two long running, massive fraudulent schemes" perpetrated by the defendants: (i) to deceive investors into thinking that a "popular" payment application was using the firm's blockchain to process its transactions, when the transactions were actually processed through traditional means; and (ii) to mislead investors about the stability of the firm's token—at one point arranging for a high frequency trading firm to prop up its price. In December 2023, the Court found the defendants liable for the SEC violations. In April 2024, a jury found the defendants liable for securities fraud. In January 2024, the crypto firm filed for Chapter 11 bankruptcy protection.
Under the settlement, (i) the firm agreed to pay nearly $3.5 billion in disgorgement and $467 million in prejudgment interest, and a civil penalty of US $420 million; (ii) the CEO agreed to pay $204 million, ($110 million in disgorgement, a civil penalty of US $80 million, and US $14 million in prejudgment interest); (iii) the CEO agreed to transfer $204 million to the crypto firm, to be distributed among harmed investors; (iv) the CEO agreed not to serve in an officer or director role for any public companies; (v) the defendants were enjoined from violating antifraud and registration requirements; (vi) the defendants were enjoined from "engaging in crypto asset securities transactions[;]" and (vii) the firm agreed to seek Chapter 11 approval.