Continuing its whip on troubled crypto firms, SEC charged Terra founder Do Kwon for alleged fraud to the tune of $40 million to its investors.
In a complaint filed in the Southern District of New York, the agency’s chair Gary Gensler alleged that the Singapore-based Terraform Labs and its boss Do-hyung 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.”
“We also allege that they committed fraud by repeating false and misleading statements to build trust before causing devastating losses for investors,” it added.
Often regarded as crypto’s most volatile event, on May 12, 2022, stablecoin UST and crypto asset LUNA of the Terra Ecosystem collapsed in a matter of days, wiping out the savings of countless people.
The excess supply of LUNA and the rapid depegging of UST made investors lose confidence. As a result, the prices of both assets spiral and got delisted from leading exchanges.
According to SEC’s allegations, Kwon and his firm Terraform hatched a plan to lure investors and raised billions of dollars from Apr. 2018 to May 2022.
An “interconnected suite” of crypto asset securities, such as securities-based swaps that mimicked U.S. stocks and most notably, the so-called “algorithmic stablecoin” TerraUSD, are offered and sold as a means of raising money from investors.
The firm showcased stablecoin UST as a “yield-bearing” coin, that promised to pay interest of up to 20 percent, SEC stated in its complaint.
Terra Founder Remained Defiant
In the lawsuit submitted to the federal court for the Southern District of New York in Manhattan, Kwon and Terraform was accused of breaking the Securities and Exchange Act’s registration and anti-fraud provisions.
SEC enforcement director Gurbir Grewal said in the press statement.
Today’s action not only holds the defendants accountable for their roles in Terra’s collapse, which devastated both retail and institutional investors and sent shock waves through the crypto markets but once again highlights that we look to the economic realities of an offering, not the labels put on it.
Kwon faced tremendous legal and social pressure for his role in the Terra crash. Citizens from various jurisdictions — including South Korea, Singapore, and the United States are taking legal action against him, including an Interpol arrest warrant.
Since then, the beleaguered founder has remained evasive about his whereabouts. With regard to the latest lawsuit, Kwon has not made any comments, at the time of writing this article.