SEC accuses Terraform Labs and CEO Do Kwon of defrauding crypto investors

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The United States Securities and Exchange Commission on Thursday indicted Terraform Labs, a Singapore-based crypto firm, and its chief executive Do Kwon, for multi-billion dollar fraud involving crypto assets.

In a complaint filed in the US District Court for the Southern District of New York, the SEC accuses the defendants of violating the registration and anti-fraud provisions of the Securities Act and the Exchange Act.

Kwon could not be reached for comment.

The SEC alleges that Terraform and Kwon marketed crypto asset securities to investors with repeated claims that the tokens would increase in value. The SEC statement also alleges that Terraform and Kwon misled and deceived investors when marketing the LUNA token, a cryptocurrency that crashed in May 2022. Terraform and Kwon also allegedly misled investors on the stability of TerraLUNA, an algorithmic stablecoin, which broke away from the US dollar caused its price to drop to zero in May.

“We allege that Terraform and Do Kwon failed to provide full, fair, and truthful disclosure to the public as required for a host of crypto asset securities, including LUNA and Terra USD,” the SEC Chairman said. Gary Gensler, in a statement. “We also allege that they committed fraud by repeating false and misleading statements to build trust before causing devastating losses to investors.”

Gensler also said this case demonstrates how “crypto companies will avoid complying with securities laws.”

In recent months, the SEC has cracked down on crypto companies, including Kraken, a popular crypto exchange, which was hit with a $30 million fine for failing to register its crypto staking program. . The SEC also hit two crypto exchanges known for trading Bitcoin BTCUSD, -2.66%, Gemini and Genesis, in January with charges related to unregistered securities.

Terraform Labs, which was founded in 2018 by Do Kwon and Daniel Shin, is known for its Luna cryptocurrency and Terra stablecoin, which is a type of cryptocurrency whose value is tied to other assets. Terra was backed by reserves including the US dollar, cash equivalents and other assets.

In May 2022, stablecoin TerraUSD (or “UST”) and Luna crashed, sparking an event that wiped out nearly $45 billion in market capitalization in one week. Prior to its crash, UST was the largest algorithmic stablecoin in the world and the 10th largest cryptocurrency, aiming to be a one-to-one peg with the US dollar.

After the collapse, South Korean law enforcement issued a locate and arrest notice for Kwon, who in September said he only shared his location with friends he planned to meet and with people playing web3 games.

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