The US Securities and Exchange Commission (SEC) charged Terraform Labs, the Singapore-based company that developed LUNA and UST—native tokens of the Terra ecosystem—and its co-founder Do Kwon on February 16 with orchestrating a multibillion-dollar scam by marketing and trading unregistered securities using digital assets.
The SEC’s action, filed in the US District Court for the Southern District of New York, claims that the fraudulent scheme sponsored by Kwon and Terraform resulted in billions of dollars in losses to both retail and institutional investors through various investment channels.
Terraform and Kwon regularly misled and duped investors into thinking a well-known Korean mobile payment app used the Terra blockchain to settle transactions that would give LUNA value while selling the LUNA token, the lawsuit further alleges.
Additionally, the SEC claims that Terraform and Kwon deceived investors regarding the stability of UST. The value of UST’s sister tokens fell to zero in May 2022 when it depegged from the US currency.
The regulatory agency also took issue with mAssets, crypto derivatives that mirror the stock price of publicly traded corporations, and Terraform’s issuance of Mirror (MIR), a governance token for the Mirror protocol that lists mAssets.
SEC Holds Do Kwon and Terraform Labs Accountable for the Crash
Gary Gensler said in a statement that Kwon and Terraform “failed to provide the public with full, fair, and truthful disclosure,” particularly for USTC and LUNC, which were formerly named Terra (LUNA) and TerraUSD (UST). He said,
“We also allege that they committed fraud by repeating false and misleading statements to build trust before causing devastating losses for investors.”
Charges relating to breaches of the registration and anti-fraud rules of the Securities Act and the Exchange Act were contained in the 55-page complaint that the SEC submitted to the U.S. District Court for the Southern District of New York.
Meanwhile, Do Kwon’s latest Twitter activity was in the first week of February 2023, and his location has not been discovered despite Interpol issuing a red notice against him.
The claims brought by the SEC against Terraform and Kwon come after the American regulator took enforcement action against Kraken and its staking services. The New York Department of Financial Services (NYDFS) also informed Paxos that it could no longer mint BUSD and published a consumer notice on the stablecoin.