The US Securities and Exchange Commission (SEC) has filed charges against blockchain platform Terraform Labs and its founder, Do Kwon, for defrauding investors in a multibillion-dollar scheme. Kwon is accused of lying to investors about how stable Terraform’s TerraUSD (UST) and Luna cryptocurrencies were, which caused investors around the world to lose billions of dollars. According to the SEC, Kwon raised billions of dollars from investors beginning in April 2018 by selling a series of unregistered securities. TerraUSD, an algorithmic stablecoin designed to maintain a 1:1 peg to the US dollar, derives its value through a paired token called Luna.
Fraudulent scheme
The SEC’s complaint alleged that Terraform and Kwon misled investors about the stability of UST and claimed that the firm’s crypto tokens would increase in value. The market turmoil that followed the collapse of TerraUSD in May 2022 led to the failure of several major crypto companies. US crypto lender Celsius Network and Singapore-based crypto fund manager Three Arrows Capital were among the casualties of the collapse. The SEC has charged Kwon with fraud, saying he and Terraform Labs crafted a multibillion-dollar crypto asset securities fraud scheme starting in 2018.
Elliptic estimated that investors in TerraUSD and Luna lost an estimated $42 billion globally as a result of the scheme.
Read More: FTX founder SBF Arrested in Bahamas
Singapore-based crypto developer Do Kwon’s whereabouts are currently unknown, with the South Korean court issuing an arrest warrant in September 2022 alleging he was residing in Singapore. However, the Singapore Police Force said he was not currently in the city-state.
SEC Chair Gary Gensler said the case demonstrated “the lengths to which some crypto firms will go to avoid complying with the securities laws, but it also demonstrates the strength and commitment of the SEC’s dedicated public servants”.
Compliance with securities laws is essential for crypto firms
The SEC’s complaint alleges that Terraform and Kwon marketed crypto asset securities to investors seeking to profit, repeatedly claiming that the tokens would increase in value. It also alleges that they committed fraud by repeating false and misleading statements to build trust, leading to devastating losses for investors. The SEC said Terraform and Kwon failed to provide the public with full, fair, and truthful disclosure as required for a host of crypto asset securities.
