SEC to file plan Aug. 20 for $123M Terra Fair Fund

The Securities and Exchange Commission must file by Aug. 20 a proposed plan to distribute a $123.1 million Fair Fund paid by Tai Mo Shan, a Jump Crypto subsidiary, to compensate investors harmed by Terra’s May 2022 collapse. The filing will set eligibility rules, loss calculations, any claims process and payment procedures, but it will not trigger immediate payouts.

Tai Mo Shan has already deposited the full $123.1 million required by the SEC order. The total includes $73.45 million in disgorgement, $12.92 million in prejudgment interest and a $36.73 million civil penalty. The funds, plus accrued interest, are held in a Fair Fund for eventual distribution. Tai Mo Shan settled the SEC action without admitting or denying the agency’s findings that it negligently misled investors during the TerraUSD depeg and acted as a statutory underwriter for certain LUNA sales.

The SEC issued an order in February giving staff more time to develop a distribution methodology and to coordinate, where appropriate, with recoveries from separate litigation involving Terraform Labs. The pending proposal is expected to specify the formula for quantifying investor losses tied to the UST depeg and related LUNA sales, and whether investors must submit claims to receive payments.

A key issue for the plan is how to coordinate the Fair Fund with recoveries from the Terraform Labs bankruptcy and its claims process. Creditors pursuing recoveries through the bankruptcy do so under a separate claims procedure, and filing a claim there will not automatically establish eligibility for the Tai Mo Shan Fair Fund. The SEC must determine how losses recognized in the bankruptcy process relate to losses eligible under the Fair Fund.

After the SEC files the proposed plan, the agency typically publishes the plan for public review, allows a notice and claims window, verifies claims and seeks final approval of any distribution mechanics. Those administrative steps must be completed before any funds are disbursed, so an Aug. 20 filing will mark the start of a longer process.

The Fair Fund represents one recovery path for investors alleging harm from the UST depeg and related token sales. Market participants and affected investors will review the SEC’s filing for the first detailed framework on eligibility, loss calculation and how the fund will interact with other recoveries.