Just in Time: SEC Charges Do Kwon, Terraform Labs With Fraud

Almost a year after the algorithmic stablecoin Terra USD lost its peg, and following tens of billions of dollars of investor money evaporating into thin air, the SEC charged Terraform Labs and CEO Do Kwon on Thursday for allegedly “orchestrating” cryptocurrency securities fraud. 

The regulators’ complaint was filed in the Southern District of New York on Thursday. It charges Kwon and Terraform Labs on two federal securities counts. 

Terraform and Kwon should have registered a number of their cryptoassets with the SEC as securities, the regulator said — including crypto swaps on underlying equities.

The charges stem from both Kwon personally and his company allegedly raising billions of dollars from investors over a four-year period by offering and selling an “inter-connected suite of crypto asset securities,” according to a statement

It’s alleged that Kwon offered and sold unregistered securities including tokenized stocks, the algorithmic stablecoin Terra USD and sister token LUNA. It all added up, in the SEC’s estimation, as selling investors on opportunities “to invest in their crypto empire.”

Kwon is responsible for causing a $40 billion rift in the crypto market, including losses for US retail and institutional investors, the regulator alleges. 

From April 2018 until May 2022, Terraform and Kwon are said to have marketed tokens they claimed would increase in value. 

Yield-bearing stablecoin UST was paraded around as paying out as high as 20% via Anchor, the SEC says.

LUNA marketing also deceived investors that the asset was being used by a Korean payments application giant, leveraging the Terra blockchain to settle transactions and gather additional LUNA in the process, the regulator said.

The SEC’s complaint said that Kwon owns a whopping 92% of Terraform’s shares. It claims Kwon made “fraudulent misrepresentations” about Terra USD’s stability and was explicitly aware of the stablecoin’s “structural weakness.”

The defendants “aggressively marketed” Terraform’s cryptocurrencies to US investors, according to the SEC, by “posting information and promotional materials to accounts on several publicly accessible online social media platforms, such as Twitter accounts, blog posts, YouTube, and messaging applications like Telegram.”

Kwon, who has an Interpol Red Notice out for his arrest, has been on the run since the demise of Terra last year. His location has been unknown.

The South Korean native was also hit with an arrest warrant by the Seoul Southern District Prosecutor’s Office four months after Terra’s implosion. 

Terraform employees including Nicholas Platias, a former head of research at Terra, and staff member Han Mo were also issued arrest warrants at the time. 

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Source: https://blockworks.co/news/sec-charges-do-kwon-terraform-labs-with-fraud-misleading-investors