The Securities and Exchange Commission (SEC) has taken action against Terraform Labs and its CEO Do Hyeong Kwon for their involvement in the algorithmic stablecoin Terra USD, which collapsed last year. The SEC claims that Terraform and Kwon raised billions of dollars from investors by offering and selling a range of crypto asset securities, many of which were not registered. This included “mAssets,” which are security-based swaps designed to pay returns based on the price of US company stocks, as well as the Terra USD.
SEC Chair Gary Gensler said in a statement announcing the enforcement action, “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. We also allege that they committed fraud by repeating false and misleading statements to build trust before causing devastating losses for investors.”
Algorithmic stablecoins, such as Terra USD, use market incentives and algorithms to maintain a stable price. Terra was linked to Luna, a governance token, in order to keep the prices stable. Unfortunately, Terra USD crashed in May, wiping out billions.
The SEC further alleges that Terraform and Kwon marketed “crypto asset securities” to earn a profit, and marketed Terra USD as a “yield-bearing” stablecoin. They also claimed that a popular Korean mobile payment application was using the Terra blockchain to settle transactions, which would accrue value to Luna. However, the SEC says that these claims were false and misleading.
In response to the charges, Gurbir Grewal, director of the SEC’s enforcement division, said, “As alleged in our complaint, the Terraform ecosystem was neither decentralized, nor finance. It was simply a fraud propped up by a so-called algorithmic ‘stablecoin’ – the price of which was controlled by the defendants, not any code.”
The SEC has filed a civil complaint in the US District Court for the Southern District of New York. In the complaint, the SEC is seeking permanent injunctions, disgorgement of ill-gotten gains, and civil penalties from Terraform and Kwon.
The collapse of Terra USD has been a major blow to the crypto industry, and a reminder of the risks associated with investing in crypto assets. The SEC’s action against Terraform and Kwon is a clear signal that the agency is taking a hard stance on fraud and market manipulation in the crypto space.
The SEC’s enforcement action against Terraform and Kwon is a reminder that investors should always do their due diligence before investing in any crypto asset. Investors should be aware of the risks associated with these investments, and should never invest more than they can afford to lose. Additionally, investors should always make sure that they are dealing with a legitimate company and that they understand the terms of any investment they make.
The SEC’s action against Terraform and Kwon is an important step in protecting investors and ensuring that the crypto industry remains a safe and secure place to invest. It is a reminder that the SEC is committed to enforcing the law and taking action against those who commit fraud or manipulate the markets. By taking action against Terraform and Kwon, the SEC is sending a clear message that it will not tolerate any form of market manipulation or fraud.