Singapore-based Terraform Labs and its founder Do Kwon have reached a tentative settlement with the U.S. Securities and Exchange Commission which sued them for allegedly misleading cryptocurrency investors before the 2022 collapse of the stablecoin TerraUSD.

The deal but not its terms was disclosed on a court website on Thursday. A jury found Kwon and Terraform Labs liable on civil fraud charges at trial in April.

The SEC had accused the company and Kwon of misleading investors in 2021 about the stability of TerraUSD, a stablecoin designed to maintain a value of $1. The regulator also accused them of falsely claiming Terraform's blockchain was used in a popular Korean mobile payment app.

U.S. District Judge Jed Rakoff in Manhattan asked the SEC and the defendants to file papers supporting the settlement by June 12.

An SEC spokesperson and attorneys for the defendants declined to comment.

The collapse of TerraUSD and Luna, a more traditional token that fluctuated in value but was closely linked to TerraUSD, roiled cryptocurrency markets in May 2022.

The SEC has estimated that investors in the two cryptocurrencies lost more than $40 billion combined when the TerraUSD peg to the dollar could not be maintained.

The regulator had asked Rakoff in court filings to make Kwon and Terraform Labs relinquish $5.3 billion in what it called ill-gotten gains from sales of the stablecoin.

The SEC also sought a $420 million fine on the company and a $100 million fine for Kwon, and for both to be banned from dealing in "crypto asset securities."

The cryptocurrency entrepreneur and his company had argued that the maximum fines allowed were $3.5 million on Terraform Labs and less than $1 million for Kwon.

Kwon faces related criminal charges in the U.S. and his native South Korea. He has denied wrongdoing.

Since his arrest in March 2023, he has been awaiting extradition from Montenegro, where authorities have gone back and forth on where he should be sent.

(Reporting by Jody Godoy in New York; Editing by Richard Chang)