- Following the collapse of Terra LUNA, the commission claims investors lost at least $40 billion.
- SEC maintains it was a case of fraud orchestrated by Terraform Labs’ founder, Do Kwon.
The US Securities and Exchange Commission (SEC) has filed a case against Terraform labs (TFL) – the company behind the collapsed crypto Terra Luna Classic and stablecoin Terra USD – together with its founder, Do Hyeong Kwon, for defrauding investors in crypto schemes.
See Related: The ‘Terra’ble Fate Of $UST And Its Sister Coin, $LUNA
Filed before the United States District Court Southern District of New York on February 16, the authority claims that the defendants, Terraform and Kwon, caused investors losses of at least $40 billion, including the retail and institutional clients in the US.
The 55-page complaint also took issue with some of the blockchain projects promoted by TFL, including the Anchor protocol and mAssets. It claims they were sold by the defendant as profits-seeking investments and solely controlled by Kwon, with no decentralization. Terraform promoted Anchor Protocol as a yield-bearing platform paying 19-20% interest.
See Related: Do Kwon Reportedly Withdrew Millions Per Month Leading To UST Collapse
Misrepresentation Of The UST Stablecoin Peg
There are also damning reports in the lawsuit related to the algorithmic stablecoin UST, then marketed by Kwon and his team as using algorithms to achieve a dollar peg. According to the commission, this was a false representation of facts since no algorithms were involved, and Kwon controlled the ‘purported peg.’
See Related: Interpol Issues Red Notice On Terraform Labs Founder Do Kwon
For instance, when the stablecoin dropped below $1 in May 2021, Terraform reportedly sought a third party to purchase vast amounts of UST to restore the dollar peg, the lawsuit states. The defendants then touted the restoration as a success in decentralization, further deceiving the public. The algorithmic stablecoin would later depeg in May 2022 under selling pressure, with no secret plot to save the token, causing unprecedented losses and market shocks.
Two months into the collapse of Terra Luna, the South Korean authorities raided TFL premises in Seoul in an investigation into the defunct crypto project on claims that the company had been engaging in illegal activities and wash trading. Kwon is now a fugitive, reportedly hiding in Serbia.
See Related: Do Kwon Cashes Out Almost 10 BTC After Fleeing To Serbia
