The High Court of Singapore is set to hold a hearing this week on the class action brought against Do Kwon and other Terraform Labs officials by over 350 investors. The lawsuit alleges that the Terraform Labs CEO, Terra founding member Nicholas Platias and Luna Foundation Guard (LFG) fraudulently misinterpreted TerraUSD’s (UST) price stability and Anchor Protocol returns. Kwon also faces criminal charges in South Korea, and his whereabouts are currently unknown.
TerraUSD (UST) Was Not “Stable By Design” – Lawsuit
Do Kwon, the co-founder of Terraform Labs, along with Terra founding member Nicholas Platias and the Luna Foundation Guard (LFG), are the targets of a lawsuit in Singapore. The case was filed in a Singapore court on September 23 on behalf of 359 individuals who claim to have lost approximately $57 million following the collapse of the Terra ecosystem occasioned by the de-pegging of its algorithmic stablecoin TerraUSD (UST) from its $1 value, according to a report by the WallStreet Journal.
The lawsuit alleges that Kwon, Platias, the LFG, and Terraform Labs made fraudulent claims on TerraUSD “either knowing that they were false and untrue, or recklessly not caring whether they were true or false.” According to the plaintiffs, the accused fraudulently misinterpreted UST, which was not “stable by design” and could not maintain its 1-to-1 U.S. dollar peg.
According to the legal claim:
“UST was supposed to be designed to be protected from the volatility of the cryptocurrency markets and acts as a store of value, pegged 1:1 to the U.S. Dollar.”
The claimants are seeking to be compensated for combined losses adding to roughly $57 million based on the value of the TerraUSD token they acquired and held or sold when the market crashed in May. They also want the court to order the defendants to pay them for “aggravated damages.”
In addition, the court document states that investors believed that UST would offer “attractive APY returns” when staked in Terra’s lending and borrowing service Anchor protocol. The lawsuit, however, claims Anchor was not “principal guaranteed” and did not provide a sustainable 20% yield as promised.
Citing “negligent misstatement, the claimants are of the view that Kwon, Platias, the LFG, and Terraform Labs “intended and knew or ought to have known” that investors would rely on their statements and be coerced to buy the stablecoin and stake UST in Anchor or hold the token through the crypto meltdown in May 2022. The case file reads:
“[They] knew or ought to have known that the Claimants wished to buy and hold cryptocurrency stablecoins that were not subject to the volatility of the wider market and earn a decent passive return.”
The claimants specifically allege that the Terra executive was aware of “the structural weakness of algorithmic stablecoins,” given his role in Basis Cash’s collapse.
The Terra ecosystem collapsed in May, wiping out more than $40 billion in investors’ wealth in just a few weeks.
Terra’s implosion was the start of the ongoing crypto winter that has sent prices of Bitcoin (BTC) and other top cryptos tumbling. The meltdown led to the collapse of high-profile crypto companies such as Celsius, Voyager, and Three Arrows Capital (3AC). It led to increased regulatory scrutiny of cryptocurrencies and stablecoins by governments worldwide.
The lawsuit is led by Julian Moreno Beltran, a Spanish citizen who claims to have lost more than $1.1 million worth of UST, and Douglas Gan Yi Dong, a Singapore native.
Other claimants in the lawsuit say they are “entitled to claim for the loss and damage suffered in purchasing the UST tokens,” as well as “aggravated damages.”
The lawsuit is scheduled for a hearing on Wednesday, November 2.
Terraform Labs Denies The Charges
Terraform Labs has denied the allegations adding that the company will defend itself against the issues in the lawsuit. The firm’s spokesperson said in a statement:
“There is a fundamental difference between a public market event and fraud. Terraform Labs and the Luna Foundation Guard committed no wrongdoing — the risks were publicly known and discussed, and the underlying code was open-sourced.”
This is just one of the numerous legal actions against Do Kwon and his associates since the May Terra UST/LUNA debacle. South Korean authorities have issued an arrest warrant against Kwon, labeling him a fugitive in September. Interpol also approved the South Korean prosecutor’s request to give a red notice for Kwon.