The SEC’s latest lawsuit further demonstrates its toughness on the cryptocurrency industry, as it fined Kraken for cryptocurrency staking services and questioned the issuance of the Binance USD (BUSD) stablecoin.
The United States Securities and Exchange Commission (SEC) formally accused Do Kwon and Terraform Labs (TFL), the company he co-founded, of running a fraudulent scheme involving the native Terra token (LUNA), as well as the algorithmic stablecoin TerraUSD (UST), which ultimately suffered a failure.
On February 16, the SEC filed a lawsuit in US federal court, alleging that TFL and Do Kwon offered and sold unregistered securities, including stablecoins, in addition to carrying out a scheme that wiped out at least $40 billion in market value for cryptocurrency.
This is considered to cause losses for retail and institutional investors in the United States.
TFL and Do Kwon were also accused of misleading investors, including by making false statements about a relationship with a popular South Korean mobile payment app called Chai, as well as promoting the stability of the UST stablecoin, which they claim it can hold its price 1-to-1 against the US dollar (USD).
Did the UST Fail in 2021?
The SEC’s lawsuit says the 2022 tragedy was not the first time UST had de-linked — that is, lost its benchmark on its underlying assets.
A year earlier, in May 2021, the value of the stablecoin had fallen below $1. This prompted TFL and Do Kwon to ask a secret third party to step in and buy in bulk to increase its value.
The recovery of UST prices to their parity with the US dollar, touted as a ‘decentralization victory’, led to an influx of money from investors.
In this regard, SEC Chairman Gary Gensler said he has accused TFL and Do Kwon of failing to provide the full, fair and honest public disclosure required for a number of crypto asset securities, notably the LUNA token and the UST stablecoin.
“We also charge them with fraud by repeating false and misleading statements to build trust before causing huge losses to investors,” Gensler added.
Target Investment Practices in the Terra Ecosystem
The SEC noted that from April 2018 to May 2022, TFL and Do Kwon raised billions of US dollars from investors by offering and selling a number of linked crypto asset securities. The SEC claims that many of these are in unregistered transactions.
In addition to the LUNA token and the UST stablecoin, the SEC also highlighted massive assets that are valued as exchange-based securities (securities) designed to pay returns (or gains) by investing in assets that mirror the prices of shares of several American companies. like Tesla to Amazon.
The cases involving TFL and Do Kwon mark a significant escalation in the US regulator’s crackdown on the crypto industry.
By Audy Castaneda
