- Terraform Labs Pte. and co-founder Do Kwon were found liable for fraud in a US government lawsuit over the firm’s 2022 collapse
- The collapse wiped out $40 billion in investor assets and shook the cryptocurrency world
- Kwon’s criminal trial is on hold over his extradition from Montenegro
Terraform Labs Pte. and co-founder Do Kwon were found liable for fraud in a US government lawsuit over the firm’s 2022 collapse, which wiped out $40 billion in investor assets and shook the cryptocurrency world.
Background
The US Securities and Exchange Commission (SEC) sued Kwon and Terraform Labs last year, accusing them of misleading investors about TerraUSD, a so-called stablecoin that was supposedly pegged to the US dollar. However, TerraUSD crashed in May 2022, bringing down Terraform’s paired token Luna and vaporizing tens of billions of dollars in market value.
The SEC claimed that Kwon and Terraform misrepresented the stability of TerraUSD. Friday’s verdict hands the SEC a victory in its push to regulate cryptocurrencies more like securities.
The Trial
During the two-week trial in New York, the SEC presented evidence that Kwon and Terraform Labs knew TerraUSD was unstable but promoted it anyway. The defense argued the tokens didn’t qualify as securities subject to SEC rules. But the eight-person jury sided with the regulator after deliberating for just two hours.
In finding the defendants liable for fraud, the jury determined their actions cost investors money. The penalty phase will begin next week to decide what Kwon and Terraform Labs owe.
What’s Next
The verdict could influence parallel criminal cases against Kwon. US prosecutors in Manhattan charged him with conspiracy to commit fraud and conspiracy to commit money laundering last year. He’s currently in Serbia fighting extradition to the US.
South Korean authorities have also indicted Kwon on charges linked to the TerraUSD collapse. The civil ruling boosts the criminal case against the one-time crypto wunderkind.
Kwon still insists he did nothing wrong. But the verdict marks a big win for the SEC as it ramps up oversight of digital asset firms. Other crypto executives are now on notice that promoting unstable coins could prompt SEC action.
