The U.S. SEC charged Terraform Labs and its co-founder, Do Kwon with securities fraud

🔍 Background:

• The U.S. Securities and Exchange Commission (SEC) charged Singapore-based Terraform Labs PTE Ltd and its co-founder, Do Hyeong Kwon, with orchestrating a multi-billion dollar crypto asset securities fraud.
• The allegations span from April 2018 until the scheme’s collapse in May 2022.

📉 The Allegations:

1. Deceptive Practices:
   • Terraform and Kwon raised billions of dollars from investors by offering and selling an interconnected suite of crypto asset securities, including “mAssets” and Terra USD (UST), an algorithmic stablecoin.
   • They allegedly misled investors about the stability of UST, which later depegged from the U.S. dollar, causing significant losses.
   • Terraform also marketed UST as a “yield-bearing” stablecoin, falsely claiming it paid up to 20% interest through the Anchor Protocol.
   • Misleading statements were made about the use of Terra’s blockchain in a popular Korean mobile payment app.
2. Verdict:
   • A federal Manhattan jury found Terraform Labs and Do Kwon liable for securities fraud in a civil trial brought by the SEC.
   • The collapse of TerraUSD and related tokens had far-reaching consequences, impacting other cryptocurrencies and leading to bankruptcy filings.
3. Penalties Sought:
   • The SEC seeks civil financial penalties and orders barring Kwon and Terraform from the securities industry.
   • Kwon, who was arrested in Montenegro in March 2023, faces extradition requests from both the U.S. and South Korea on criminal charges.
4. Economic Realities vs. Labels:
   • SEC Chair Gary Gensler emphasized that the case highlights the importance of economic realities in offerings, not just labels.
   • Terra’s collapse devastated retail and institutional investors, underscoring the need for transparency.

🚀 Takeaway:

• The verdict holds Terraform Labs accountable and underscores the SEC’s commitment to investor protection in the crypto space.
• Transparency and accurate disclosure remain critical to maintaining trust in the evolving digital asset landscape.

(Source: SEC Press Release and Axios)