A federal jury in Manhattan has found Terraform Labs and its founder Do Kwon culpable of civil fraud, siding with the US Securities and Exchange Commission’s allegations that they misled investors about the stability of the TerraUSD stablecoin before its shocking $40 billion collapse in 2022.
The two-week trial looked into Terraform’s marketing of TerraUSD, a cryptocurrency meant to maintain parity with the US dollar. The SEC accused the Singapore-based company and Kwon of falsely claiming TerraUSD’s value was underpinned by stable algorithms and that its blockchain powered a major Korean payment app.
In reality, the SEC argued, Terraform covertly propped up TerraUSD’s price in May 2021 by arranging bulk purchases, while publicly attributing its recovery to the token’s protocols. The unravelling in May 2022 sent shockwaves through crypto markets and torpedoed the linked Luna token.
While Terraform plans to explore its legal options after the verdict, the SEC enforcement chief declared it “high time” for crypto to fall in line with regulations to protect investors. The judge will now weigh potential fines and industry bans.
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