US SEC charges Terraform Labs and its CEO for running a crypto securities fraud

Terraform Labs and its CEO, Do Kwon, were just charged for a multi-billion dollar crypto asset securities fraud by the US Securities and Exchange Commission (SEC). The company has been targeted by regulators ever since the collapse of the Terra blockchain, when LUNA and the network’s native stablecoin got devalued, causing losses for countless investors in 2022.

Terraform and its CEO ran a securities scam, says SEC

The SEC announced the move this Thursday, February 16th, alleging that the assets offered by the firm were unregistered securities. The move is only the latest one in a series of similar moves made by the regulator against crypto companies lately, as the SEC also proclaimed staking as an unregistered security, and it put a scope on any company that gives or offers crypto investment advice.

As mentioned, Terraform Labs’ algorithmic stablecoin, which was pegged 1:1 with USD, collapsed in 2022. Its price almost reached zero, and the incident sent a massive shockwave through the crypto industry, strengthening the bear market and turning it into an actual crypto winter. Meanwhile, it also caused an entire wave of bankruptcies of various crypto firms that had exposure to the project.

The SEC said that Terraform and Do Kwon are charged with orchestrating and running the fraudulent scheme between April 2018 and the project’s collapse in May 2022. The lawsuit offered further details about the project, such as the fact that it raised billions from investors globally by offering and selling an inter-connected suite of crypto asset securities. The regulator added that most of these transactions were unreegistered, and that the new action holds the defendants accountable for their roles in the incident.

Terraform and Do Kwon have continuously made false and misleading statements

The collapse devastated retail and institutional investors alike, affecting the entire crypto market. However, the SEC also pointed out that the incident highlights that that it looks for economic realities of offerings, rather than labels put on them.

The part of the scheme that the regulator has a particular problem with is that the company and its CEO both made promises that the company’s crypto would increase. On top of that, they misled and deceived the investors by claiming that they use the Terra blockchain for transaction settlements. Another misinformation, according to the SEC, is that the UST stablecoin is actually stable.

Both Kwon and his company called UST the yield-bearing stablecoin, promising 20% returns on investments, which they failed to provide the public with. The complaint also says that they did not offer full, fair, and truthful disclosure, as required for a host of crypto asset securities. With that being the case, they committed fraud through false and misleading statements meant to build trust among investors, before causing devastating losses for them.