SEC Sues Terraform Labs and Do Kwon for Securities Fraud

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  • The SEC has sued Terraform Labs and its co-founder Do Kwon for offering unregistered securities
  • The agency accuses Kwon of operating a fraudulent multi-billion dollar empire
  • Kwon is thought to be in Serbia following several other criminal and civil charges

The Securities and Exchange Commission (SEC) has opened proceedings against Terraform Labs and Do Kwon, accusing the co-founder of “orchestrating a multi-billion dollar crypto asset securities fraud.” The former CEO has been accused of hiding the truth over the stability of the UST stablecoin, with the SEC saying that Kwon knew it had the potential to be volatile, and also that he offered unregistered securities through the platform.

Anchor Interest was Unregistered Security

Terraform Lab’s Terra USD project famously imploded in May last year, losing investors $60 billion and acting as the spark that lit the crypto contagion meltdown. The SEC complaint says that Terraform and Kwon engaged in the promotion of crypto asset securities to investors who were seeking to profit, by repeatedly assuring them that the tokens would appreciate in value, for example through the Anchor Protocol which promised a 20% yield on the UST stablecoin.

Additionally, the SEC alleges that while promoting the LUNA token, Terraform and Kwon misled investors by falsely claiming that a prominent Korean mobile payment app utilized the Terra blockchain for transactions that would increase the value of LUNA. The complaint also asserts that Terraform and Kwon deceived investors about the stability of UST, which became evident when UST uncoupled from the US dollar in May 2022, resulting in the value of the tokens, including UST, plummeting nearly to zero.

Gensler Says Kwon Hid Potential Volatility

In a press release, SEC chair Gary Gensler outlined the core issues with the Terraform offer:

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. We also allege that they committed fraud by repeating false and misleading statements to build trust before causing devastating losses for investors.

Do Kwon already faces criminal and civil charges over the collapse of Terra in multiple jurisdictions, but he has still not been apprehended, with Serbia being his last known whereabouts.