- Investors have voluntarily withdrawn their class action lawsuit against Terraform and Do Kwon, although no explicit reason has been given.
- Terraform and its former CEO still face charges from the SEC over alleged fraud and conspiracy.
The class action lawsuit filed by Nick Patterson, an Illinois resident, on behalf of other investors against Terraform Labs and its co-founder, Do Kwon, has been withdrawn for unclear reasons.
Patterson’s legal team filed the lawsuit in June 2022, after the collapse of Terraform Labs, which many in the crypto community attributed to market volatility, against Terraform Labs, Do Kwon, and several VC firms in the Luna Foundation Guard.
The filing alleged that TFL had misled investors concerning the state of the Terra ecosystem. It touted the stability of the “algorithm” stablecoin paired to LUNA tokens despite several structural infirmities that betrayed the token’s ability to maintain its peg to the dollar. The filing also included screenshots where the co-founder repeatedly dismissed claims by other parties about the de-pegging risk shortly before LUNA collapsed.
However, Nick Patterson’s attorney filed another suit in the United States District Court for the Northern District of California on Sept 28 to voluntarily dismiss the case against only Terraform Labs and Do Kwon.
“The [Terraform Labs] Defendants have neither answered the complaint […] nor filed motions for summary judgment,” the filing said. “Because the Court has not certified the proposed class for any purpose in this case and this dismissal is without prejudice, it will not bind members of the proposed class.”
Although the filing did not state the reason for the dismissal, a statement from TFL said the firm maintained that it committed no wrongdoing and that the “briefing process exposed its [plaintiff] weakness.” They expected to see “meritless claims against TFL fail.”
SEC Case Against TerraForm Labs
Terraform Labs and Kwon have also been the target of many regulation authorities since the crash over allegations that include intentionally misleading and defrauding investors.
In February, the Securities Exchange Commission charged the Singapore-based crypto company with orchestrating a “multi-billion dollar crypto asset securities fraud involving an algorithmic stablecoin and other crypto asset securities.”
The SEC complaint alleged that Terraform Labs and its former CEO had marketed crypto asset securities to investors, raising billions for themselves while promising the public profit for their investment—which was not the case.
“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,” said SEC Chair Gary Gensler [at the time]. “We also allege that they committed fraud by repeating false and misleading statements to build trust before causing devastating losses for investors.”
The authorities arrested Kwon and his chief financial officer in March, sentencing the former to four months in prison for using false travel documents.
However, the SEC case against TFL received green light in August, despite a motion to dismiss filed by the defendants, alleging that the stablecoin wasn’t a security as investors had no idea who the seller was. The Manhattan judge, Jed Rakoff, determined that the firm’s argument, although based on the ruling in the SEC’s case against Ripple, was illogical.