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Terraform Labs Found Liable for Civil Fraud Charges
A recent ruling by a New York jury has found Terraform Labs and its founder, Do Kwon, liable for civil fraud charges. The U.S. Securities and Exchange Commission (SEC) successfully argued its case against the company, according to a report by Reuters.
The SEC accused Terraform Labs and Kwon of deceiving investors regarding the stability of their stablecoin, TerraUSD, and making unsubstantiated claims. Following a two-week trial, the jury delivered its verdict in federal court shortly after closing arguments, as reported by Reuters. The SEC is now pursuing civil financial penalties and seeking orders to prohibit Kwon and Terraform from engaging in the securities industry.
The collapse of TerraUSD and its associated token, Luna, in May 2022 resulted in losses exceeding $40 billion and sparked widespread turmoil in the cryptocurrency market. Kwon, who was arrested in Montenegro in March 2023, did not appear at the trial. Both the U.S. and South Korea are seeking his extradition on criminal charges. Terraform Labs filed for bankruptcy protection in January.
The SEC alleged that Kwon and Terraform engaged in a covert agreement with a third party to purchase significant amounts of TerraUSD in May 2021 to maintain its peg to the dollar. Kwon falsely attributed the recovery to the reliability of TerraUSD’s algorithms. Additionally, the regulator asserted that Kwon and Terraform falsely promoted the use of their blockchain technology in Chai, a popular payment app in Korea.
Legal representatives for Terraform Labs and Kwon contended that the company had been transparent about its products and their capabilities, even in cases of failure. They argued that the SEC’s case relied on cherry-picked statements taken out of context.
This story is still developing, and further updates will be provided as more details surface.
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