The SEC accuses Do Kwon and Terra of creating a scheme to deceive investors
Do Kwon, Co-Founder of Terraform Labs, Charged with Fraud and Unregistered Security Sales by SEC
Do Kwon, co-founder of Terraform Labs, the company behind the cryptocurrency Luna and the stablecoin TerraUSD (USTC), has suffered another legal setback after the US Securities and Exchange Commission (SEC) filed charges against him. According to the SEC, Kwon has been accused of fraud and unregistered security sales, and has deceived multiple investors by creating a fraudulent scheme that allegedly led to the loss of $40 billion.
According to Bloomberg, the regulatory agency has accused Kwon of deceiving Terra investors, among other things, by making false statements about a relationship with a popular South Korean mobile payment app called Chai and the stability of the stablecoin. It is worth noting that TerraUSD was not backed by real assets but by an algorithm and a complex system that eventually failed and lost its link to the dollar, causing the token to disappear.
The SEC lawsuit also highlights that last year's collapse was not the first time the stablecoin lost its peg to the greenback. A year earlier, in May 2021, the token's value fell below one dollar, prompting Terraform Labs and Kwon to ask a US-based third party to intervene and buy large quantities to inflate its value, according to the agency. The regulator alleges that this event, which was promoted as a "triumph of decentralization," caused significant inflows of money into the token.
Co-founder of Terraform Labs, Do Kwon, faces fraud charges from SEC
Do Kwon, the co-founder of Terraform Labs, the company behind the cryptocurrency Luna and the stablecoin TerraUSD (USTC), has been hit with fresh legal setbacks after the US Securities and Exchange Commission (SEC) filed charges against him. According to the SEC, Kwon has been charged with fraud and selling unregistered securities, and has misled multiple investors by creating a fraudulent scheme that would have led to a $40 billion loss.
As reported by Bloomberg, the regulatory agency has accused Kwon of deceiving Terra investors, among other things, by making false statements about a relationship with a popular South Korean mobile payment app called Chai and about the stability of the stablecoin. It should be noted that TerraUSD was not backed by real assets, but by an algorithm and a complex system that eventually failed, causing the token to lose its link with the dollar and disappear.
The SEC complaint also highlights that last year's collapse was not the first time the stablecoin lost its peg to the US dollar. A year earlier, in May 2021, the value of the token fell below one dollar, leading Terraform Labs and Kwon to ask a US-based third party to intervene and buy large quantities to inflate its value, according to the agency. The regulator denounces that this fact, which was promoted as a "triumph of decentralization," led to significant inflows of money into the token.
"The project was not decentralized or financial," said Gurbir S. Grewal, Director of Enforcement at the US regulator, describing Terra as a "fraud propped up by an algorithmic 'stablecoin' whose price was controlled by the defendants, not by any code." The SEC complaint also notes that Terraform and Kwon made misleading statements about how UST was re-linked to the dollar after its recovery in May 2021, emphasizing the alleged effectiveness of USTC's underlying algorithm in maintaining the link, but misleadingly omitting the true cause of the revinculation of USTC: the deliberate intervention of the US trading firm to restore the link.
Bankruptcy of cryptocurrency companies following the collapse of Terra and the increasing regulation by the SEC
The collapse of Terra in May 2021 triggered a domino effect that affected numerous cryptocurrency companies, including Three Arrows Capital, Celsius Digital, FTX, BlockFi, and Genesis, and plunged cryptocurrencies into a bear market from which they have yet to recover. The recent SEC lawsuit against Terraform Labs and its founder Do Kwon confirms the US regulator's intention to exert greater control over cryptocurrencies, as seen in other recent sanctions against Kraken and warnings to issuers of Binance USD. Additionally, Do Kwon, sought by South Korea and Interpol, remains in unknown whereabouts, although he is believed to be in Serbia.