The Securities and Exchange Commission charged Terraform Labs and its CEO Do Hyeong Kwon over its algorithmic stablecoin Terra USD, which collapsed dramatically last year.
The agency said the Singapore-based company and Kwon raised billions from investors by “offering and selling an inter-connected suite of crypto asset securities, many in unregistered transactions.” That included “mAssets,” which the SEC said are security-based swaps designed to pay returns by mirroring the price of U.S. company stocks as well as the infamous Terra USD.
“We allege that Terraform and Do Kwon failed to provide the public with full, fair, and truthful disclosure as required for a host of crypto asset securities, most notably for LUNA and Terra USD,” said SEC Chair Gary Gensler in a statement announcing the enforcement action. “We also allege that they committed fraud by repeating false and misleading statements to build trust before causing devastating losses for investors.”
Algorithmic stablecoins, like Terra USD, use market incentives via algorithms to maintain a stable price. Terra was linked to Luna, a governance token, to keep the prices stable. Terra USD crashed in May, wiping out billions.
Terraform and Kwon marketed “crypto asset securities” to earn a profit, such as marketing Terra USD as a “yield-bearing” stablecoin.
The SEC said “Terraform and Kwon repeatedly misled and deceived investors that a popular Korean mobile payment application used the Terra blockchain to settle transactions that would accrue value to LUNA. Meanwhile, Terraform and Kwon also allegedly misled investors about the stability of UST.”
The agency filed a civil complaint in the U.S. District Court for the Southern District of New York.
“As alleged in our complaint, the Terraform ecosystem was neither decentralized, nor finance. It was simply a fraud propped up by a so-called algorithmic ‘stablecoin’ – the price of which was controlled by the defendants, not any code,” said Gurbir Grewal, director of the agency’s enforcement division.
Source: https://www.theblock.co/post/212695/sec-charges-terraform-and-do-kwon-post-terra-collapse?utm_source=rss&utm_medium=rss