The Securities and Exchange Commission (SEC) is continuing its crypto crackdown filing charges againstTerraform Labs PTE Ltd and founder Do Hyeong Kwon. The firm is based in Singapore but the Commission has not been shy about pursuing crypto scofflaws anywhere in the world.
Kwon was the creator of an algorithmic stablecoin – TerraUSD (UST) that failed spectacularly causing crypto contagion around the world with untold thousands losing money in the collapse.
According to the SEC’s complaint, from April 2018 until the scheme’s collapse in May 2022, Terraform and Kwon raised billions of dollars from investors by offering and “selling an inter-connected suite of crypto asset securities, many in unregistered transactions.”
The complaint further alleges that Terraform and Kwon offered and sold investors other means to invest in their crypto empire, including the crypto asset security tokens MIR—or “mirror” tokens—and LUNA itself.
The SEC’s complaint alleges that Terraform and Kwon marketed crypto asset securities to investors seeking to earn a profit, repeatedly claiming that the tokens would increase in value.
The SEC’s complaint also alleges that, while marketing the LUNA token, 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.
In May 2022, UST lost its USD peg and the price of it and its sister tokens plummeted to close to zero.
“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. “We also allege that they committed fraud by repeating false and misleading statements to build trust before causing devastating losses for investors.”
Gensler said the case demonstrates the lengths to which some crypto firms will go to avoid complying with the securities laws.
Gurbir S. Grewal, Director of the SEC’s Division of Enforcement, said 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.”
The complaint, filed in the U.S. District Court for the Southern District of New York, charges the defendants with violating the registration and anti-fraud provisions of the Securities Act and the Exchange Act.