March 23, 2023

The US Securities and Exchange Commission (SEC) has filed a lawsuit against Terraform Labs PTE, Ltd. and its CEO, Do Kwon, for allegedly defrauding investors in an unregistered securities scheme. The SEC’s complaint accuses Terraform and Kwon of marketing crypto asset securities to investors, claiming that the tokens would increase in value, and touting UST as a yield-bearing stablecoin.

SEC Accuses Terraform Labs and Do Kwon of Defrauding Investors in Unregistered Securities Scheme

According to the lawsuit, in May 2021, Kwon falsely claimed that the TerraUSD algorithm helped it regain its one-to-one peg with the US dollar after losing it during a flash crash. The SEC alleges that this was part of a broader scheme to defraud investors. The SEC also alleges that Terraform and Kwon claimed that Chai, a Korean payments application, used Terra, despite the payments actually being processed through third-party intermediaries.

The SEC is seeking an order directing Terraform and Kwon to comply with investigative subpoenas for documents and testimony. In response to the SEC’s lawsuit, Terraform and Kwon have claimed that the SEC violated procedure in the ongoing legal fight.

Terraform Labs, a Singapore-based crypto firm, offered synthetic stocks on its blockchain, and disclosed that the SEC had subpoenaed its CEO in October 2021. The company ultimately collapsed in February 2023, following the failure of its TerraUSD stablecoin.

The SEC’s lawsuit is the latest in a series of legal actions against crypto firms for allegedly misleading investors. The SEC has been stepping up its enforcement actions against the cryptocurrency industry in recent years, as it seeks to protect investors and maintain the integrity of the financial system.

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