SEC Sues Terraform Labs and Do Kwon for Misleading Investors

The United States Securities and Exchange Commission (SEC) has escalated its crypto crackdown by filing a lawsuit against Terraform Labs and its co-founder, Do Kwon over fraud allegations.

According to the filed complaint, the regulator alleges that Terraform Labs sold crypto assets as unregistered securities within the period 2018 and 2022. The suit also stated that Do Kwon committed a fraudulent scheme through his firm, that led to investors losing about $40 billion of their LUNA and UST holdings.

Additionally, the SEC also claims that Kwon told investors that Chai, a well-known electronic mobile payment application, processes its payment transactions on Terra blockchain. This wasn’t the case, though, as Terraform Labs cleverly duplicated Chai’s payments to make it seem as though they were taking place on Terraform’s system.

Terraform Labs has also been accused of misleading its customers about the stability of its UST stablecoin. Kwon and his firm reportedly used a third party to prop up the price of UST in 2021 in order to restore the $1 peg when UST dropped below $1.

Based on the above allegations, the Commission is therefore ordering Kwon and Terraform Labs to pay civil monies penalties and prevent them from offering or selling crypto assets.

Meanwhile, the SEC filed a subpoena action against Terraform Labs in 2021 to ensure that the company complies with the monetary authority about specific papers and testimony.

A Tsunami of Bankruptcies Followed the Collapse of Terraform Labs

The implosion of LUNA and TerraUSD did have wider ramifications for the crypto market as a whole, with an indirect effect on the viability of some businesses. For instance, the collapse forced well-known cryptocurrency lenders Celsius Network and Voyager Digital.

The embattled crypto lender, Celsius announced it was filing for bankruptcy protection in May following a halt on customers’ withdrawals. At the time, Celsius said it has as many as 100,000 listed customers on its platform but needed ample liquidity to assist specific activities while the reorganization process is underway.

Similarly, Voyager Digital filed for bankruptcy protection, months after the collapse of LUNA and the TerraUSD sent a wave of shock throughout the entire crypto ecosystem.