The United States’ Securities and Exchange Commission has charged Tai Mo Shan Ltd., a subsidiary of Jump Crypto Holdings, in connection with the 2022 collapse of Terra’s algorithmic stablecoin, terrausd (UST). In a settlement announced recently, Tai Mo Shan agreed to pay $123 million to resolve allegations of misleading investors and violating U.S. securities laws.
At the core of the SEC’s case is the claim that Tai Mo Shan took deceptive steps to stabilize UST’s $1 peg, which ultimately misled investors about the stability of the stablecoin. The SEC complaint alleges that the firm purchased over $20 million worth of UST when its value fell below $1, creating the illusion that Terra’s algorithmic mechanisms were functioning as promised. In reality, these actions masked the inherent instability of the system.
Additionally, the SEC asserts that Terraform Labs, the company behind Terra, encouraged Tai Mo Shan to make these purchases by offering discounted options for its sister token, Luna. The charges also include accusations that Tai Mo Shan acted as an underwriter by buying Luna from Terraform Labs and reselling it as a security on U.S.-based crypto exchanges between January 2021 and May 2022.
The timing of these events coincides with the devastating collapse of UST in May 2022, which triggered massive losses across the crypto market. The fall of Terra marked a significant turning point, as it not only wiped out billions of dollars in value but also deepened skepticism about the reliability of algorithmic stablecoins. This contributed to the broader “crypto winter” and fueled calls for stronger regulatory oversight.
Earlier this year, Terraform Labs and its founder, Do Kwon, were held liable for fraud, resulting in a staggering $4.5 billion settlement with affected investors. Now, Tai Mo Shan has agreed to pay a hefty $73.5 million in disgorgement, $12.9 million in prejudgment interest, and a $36.7 million civil penalty. Though the firm did not admit to or deny the SEC’s findings, it has agreed to cease any violations of U.S. securities laws.
SEC Chair Gary Gensler, who will be leaving his post soon, noted that the case serves as a reminder of the far-reaching consequences of market manipulation. “The impact of this scheme rippled throughout the crypto markets, costing the savings of countless investors,” he said.
The collapse of UST has become a textbook example of the risks associated with algorithmic stablecoins, which rely on complex systems to maintain their value. Critics argue that these coins are inherently unstable and prone to failure, particularly in the face of market turbulence.
As Tai Mo Shan settles its case and regulators continue to tighten their grip on the industry, this event underscores the growing pressure for crypto businesses to be more transparent and compliant with established financial regulations. With the SEC increasingly focused on accountability, the landscape for digital assets may be shifting toward more robust oversight and governance.
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