- Terraform Labs and Do Hyeong Kwon are being sued by the US SEC.
- The complaint alleges that billions were lost to the defendants’ fraudulent scheme.
- The crypto community questions how the US SEC is against TFL and Do Kwon.
The United States Securities and Exchange Commission (SEC) has sued the company behind the collapsed stablecoin—Terraform Labs—and its co-founder, Do Kwon, for committing fraud which led to the loss of $40 billion of market value.
Since the fall of Terraform Labs and its stablecoins (USTC and LUNA) in 2022, the SEC has been hot on the chase of its CEO, Do Kwon, claiming that he was a mastermind behind the fraudulent act.
On February 16, the SEC published a press release announcing its lawsuit against the crashed crypto firm, alleging that Terraform Labs and Do Hyeong Kwon had planned a multi-billion dollar digital assets securities fraud involving an algorithmic stablecoin and various digital asset securities.
According to the U.S. SEC, the defendants generated billions of dollars from investors by offering and selling an “inter-connected suite of crypto asset securities,” the SEC further claimed the defendants conducted such acts in unregistered transactions.
In the statement, the Securities and Exchange Commission stated that mAssets, security-centric swaps developed to pay returns by reflecting the rate of stocks of United States firms. Terra USD (UST), also called “algorithmic stablecoin,” allegedly maintained its peg to the U.S. dollar by being interchangeable for Terraform’s other crypto asset securities, LUNA.
In a complaint made by the SEC, the U.S. regulatory body alleged that from April 2018 till the fall of the crypto company in May 2022, both Do Kwon and Terraform Labs proposed and sold investors other methods to invest in their crypto company, using the security tokens “MIR” (mirror tokens) and LUNA tokens.
“Defendants’ crypto asset securities offerings involved an array of interrelated tokens that were created, developed, promoted, offered, and sold by Defendants as profit-seeking investments,” the complaint reads.
According to the investigation carried out by the SEC, Terraform and Do Kwon marketed the virtual asset securities to investors in the U.S. and overseas, alleging that the tokens would increase in value and lauding organizational efforts to do so.
The SEC has accused Terraform and its wanted CEO of promoting a “yield-bearing” blockchain protocol created by Terraform. “Anchor Protocol” promised to pay 19-20% interest on Terraform’s crypto assets.
The defendants were guilty of touting and marketing the protocol and misleading the public by announcing that a famous Korean e-mobile payment app, “Chai,” had used Terraform blockchain to process and settle transactions between traders and traders’ clients.
SEC chair Gary Gensler commented on the SEC lawsuit against Terraform and Do Kwon, stating that the defendants neglected to provide the people with “full, fair, and truthful disclosure” as mandatory for a host of crypto assets securities.
The Crypto Community Reacts to SEC’s Approach
Although the crypto community does not support Terraform Labs and Do Kwon’s actions, they question how the U.S. SEC is going after the defendants. Crypto lawyers have been vocal about the recent activities of the SEC regarding the Terraform and Do Kwon case.
A Web3 lawyer, Mike Selig, penned his thoughts on Twitter, aiming that the SEC had contradicted itself by characterizing UST as an investment contract but as a security.
“SEC complaint against TFL and Do Kwon alleges that LUNA and UST are securities. In a novel theory, the SEC characterizes UST as an investment contract and security bc, which could be exchanged for security (LUNA). Under this theory, nearly anything can be a security,” Selig said.
Conclusion
The US SEC lawsuit against Terraform Labs and its co-founder, Do Kwon, almost a year after the company’s crash. Diligent investigations have proven that the defendants planned the fraudulent scheme, which resulted in a loss of over $40 billion in investors’ funds.
