The U.S. Securities and Exchange Commission (SEC) is continuing its crackdown on the cryptocurrency space, and the latest target of its attention is Do Kwon, the creator of Terra LUNA. In May 2022, the Terra ecosystem suffered a major crash that cost investors more than $40 billion.
The SEC has now filed a complaint against Do Kwon in a U.S. federal court in Manhattan, accusing him of orchestrating a $40 billion securities fraud involving LUNA and Terra’s algorithmic stablecoin TerraUSD (UST). Do Kwon has been on the wanted list of global regulators for some time, with South Korean regulators seeking his location and issuing an Interpol notice. He was last seen in Serbia.
This is the first time the SEC has taken action against Do Kwon. The complaint notes that Terraform Labs sold securities as “unregistered transactions” billed as “profit-seeking investments” and with the promise of offering up to 20% interest. SEC Chair Gary Gensler commented on the development, saying:
“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.”
The SEC also noted that Terraform Labs touted and marketed the TerraUSD (UST) stablecoin as a “yield-bearing” stablecoin. Do Kwon allegedly misled investors about the LUNA token, as well as the stability of TerraUSD. On May 22, UST started de-pegging from the U.S. Dollar and the price of its sister token plummeted close to zero.
The SEC also accused Do Kwon of misleading customers that a South Korea-based mobile application Chai, processed transactions between merchants and consumers. In reality, Chai payments did not use the blockchain to process and settle payments. Instead, defendants deceptively replicated Chai payments onto the Terraform blockchain in order to make it appear that they were occurring on the Terraform blockchain, when, in fact, Chai payments were made through traditional means.
The SEC further noted that the Terraform ecosystem was neither decentralized nor financed. “It was simply a fraud propped up by a so-called algorithmic ‘stablecoin’” it said.
The U.S. Securities and Exchange Commission (SEC) is continuing to take a hard stance on the cryptocurrency space, with the latest target of its attention being Do Kwon, the creator of Terra LUNA. In May 2022, the Terra ecosystem suffered a major crash, eroding more than $40 billion worth of investors’ wealth.
In response, the SEC has filed a complaint against Do Kwon in a U.S. federal court in Manhattan, accusing him of orchestrating a $40 billion securities fraud involving LUNA and Terra’s algorithmic stablecoin TerraUSD (UST). Do Kwon has been on the wanted list of global regulators for some time, with South Korean regulators seeking his location and issuing an Interpol notice. He was last seen in Serbia.
This is the first time the SEC has taken action against Do Kwon. The complaint notes that Terraform Labs sold securities as “unregistered transactions” billed as “profit-seeking investments” and with the promise of offering up to 20% interest. SEC Chair Gary Gensler commented on the development, saying:
“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.”
The SEC also noted that Terraform Labs touted and marketed the TerraUSD (UST) stablecoin as a “yield-bearing” stablecoin. Do Kwon allegedly misled investors about the LUNA token, as well as the stability of TerraUSD. On May 22, UST started de-pegging from the U.S. Dollar and the price of its sister token plummeted close to zero.
The SEC also accused Do Kwon of misleading customers that a South Korea-based mobile application Chai, processed transactions between merchants and consumers. In reality, Chai payments did not use the blockchain to process and settle payments. Instead, defendants deceptively replicated Chai payments onto the Terraform blockchain in order to make it appear that they were occurring on the Terraform blockchain, when, in fact, Chai payments were made through traditional means.
The SEC further noted that the Terraform ecosystem was neither decentralized nor financed. “It was simply a fraud propped up by a so-called algorithmic ‘stablecoin’” it said. This fraud was enabled by Do Kwon’s false and misleading statements, which sought to create an illusion of decentralization and stability.
Do Kwon’s actions caused immense damage to investors, who trusted his false and misleading statements and invested their hard-earned money in the Terra ecosystem. The SEC’s complaint is a reminder that those who commit securities fraud will be held accountable for their actions. It is also a warning to those who are looking to take advantage of the cryptocurrency space and defraud investors. The SEC will continue to take a hard stance against those who seek to take advantage of investors and commit securities fraud.
