Terra Founder Charged With Fraud

The founder of the collapsed Terra stablecoin, Do Kwon, has been charged with securities fraud by the U.S. Securities and Exchange Commission (SEC). 

SEC Sues Do Kwon

The SEC has taken legal action against disgraced Do Kwon by filing an official complaint with the Southern District of New York. The lawsuit also names the now-defunct stablecoin issuing company Terraform Labs and charges them both with defrauding investors through a multi-billion dollar crypto asset securities fraud. 

An excerpt from the lawsuit reads, 

“Terraform and Kwon also misled investors about one of the most important aspects of Terraform’s offering – the stability of UST, the algorithmic ‘stablecoin’ purportedly pegged to the U.S. dollar. UST’s price falling below its $1.00 ‘peg’ and not quickly being restored by the algorithm would spell doom for the entire Terraform ecosystem, given that UST and LUNA had no reserve of assets or any other backing.”

Details Of The Lawsuit

The lawsuit also claimed that investors were misled about issues regarding using TerraUSD for payments. According to the filings, the SEC is considering both the yield-bearing Anchor Protocol and the LUNAtoken as “crypto asset securities.” Other than the fraud allegations, the regulatory body is also charging Terraform Labs and Do Kwon with selling unregistered securities, selling unregistered security-based swaps, among other claims. 

The complaint also claimed that the company tried to restore the UST’s peg after it fell 10 cents in May 2021 when an unnamed trading firm bought the stablecoin and received LUNA tokens instead. The complaint further claimed that Terraform and its founder have not been truthful about how the UST’s peg to the dollar was restored. 

“Terraform and Kwon emphasized the purported effectiveness of the algorithm underlying UST in maintaining UST pegged to the dollar – misleadingly omitting the true cause of UST’s re-peg: the deliberate intervention by the U.S. Trading Firm to restore the peg.”

SEC On A Warpath

The SEC has always maintained a tough stance on cryptocurrency, often equating them to unregistered securities. However, ever since the multiple catastrophes of last year, like the Terra ecosystem collapse, and the FTX-Alameda Research debacle, the regulatory body has tightened the ropes even further around the industry’s neck. Recently, it has been in the news for filing lawsuits against other crypto companies, like Paxos, Coinbase, and Kraken. It is also working on stricter guidelines for the crypto custody providers and has even proposed to prevent hedge funds, pension funds, and private equity firms from working with crypto custodians.

Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.