Do Kwon, the founder of Terraform Labs, and the company have been sued by the U.S. Securities and Exchange Commission for allegedly organizing a multi-billion-dollar crypto asset securities fraud.
The US SEC claimed that Kwon and Terraform offered and sold a connected collection of crypto asset securities, many of which were done so without registering the transactions from April 2018 to May 2022. The organization mentioned TerraClassicUSD (USTC), a now-defunct algorithmic stablecoin from Terraform Labs, and Terra Luna Classic, a cryptocurrency linked to it, as part of these cryptoassets.
According to the US SEC’s complaint filed in the District Court of the Southern District of New York, the corporation and its founder misrepresented the stability of Terra USD, a stablecoin created by Kwon meant to retain its 1-to-1 peg to the dollar through its sister cryptocurrency, Luna.
Also, the US SEC voiced concerns with Terraform’s release of Mirror (MIR), a governance token for the Mirror protocol that lists mAssets. mAssets are cryptocurrency derivatives that mimic the stock prices of publicly traded corporations.
SEC Chair Gary Gensler stated:
“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.”
Gensler praised the SEC’s diligent personnel for remaining alert in such a significant investigation, despite the defendants’ attempts to obstruct them from learning crucial facts about their company.
Gurbir S. Grewal, Director of the SEC’s Division of Enforcement, stated:
“Today’s action not only holds the defendants accountable for their roles in Terra’s collapse, which devastated both retail and institutional investors and sent shock waves through the crypto markets, but once again highlights that we look to the economic realities of an offering, not the labels put on it.”
Grewal pointed out that, according to what their complaint claimed, the Terraform ecosystem needed to be decentralized and financed. It was only a fraud supported by a so-called algorithmic “stablecoin,” the value of which was decided by the defendants rather than any code.
Alliance DAO’s general counsel, Mike Wawszczak, added his thoughts on the SEC vs Terra lawsuit. Wawszczak claimed in his tweet that SEC Chairman Gary Gensler might desire complete discretion in how securities regulations are applied to any transactions.
hmm
hard to read the SEC v. TFL complaint and not conclude that Chairman Gensler wants complete discretion to apply securities laws to any transaction he wants.
for that job, he requested $2.2 billion in FY 2023.
(for comparison, San Francisco’s budget last year was $13 bil) https://t.co/BlcWyFgp4H
— Mike Wawszczak (@mikedotwaves) February 17, 2023
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