• The U.S. Securities and Exchange Commission (SEC) has charged Terraform Labs and its CEO, Do Hyeong Kwon, with fraud for running a multibillion-dollar crypto-asset securities scam.
• Kwon allegedly raised billions from investors by creating an interconnected suite of crypto-asset securities, many of which were involved in unregistered transactions.
• The SEC’s charges against Terraform and Kwon follow the SEC’s enforcement actions against Kraken and its staking services, as well as the New York Department of Financial Services (NYDFS)’s orders against Paxos to cease minting their PAX Gold token.
SEC Charges Terraform Labs and Do Kwon With Fraud
The U.S. Securities and Exchange Commission (SEC) has charged Terraform Labs Pte. Ltd., and its CEO, Do Hyeong Kwon, with fraud for running a multibillion-dollar crypto-asset securities scam. The regulator alleges that Kwon raised billions from investors by creating an interconnected suite of crypto-asset securities, many of which were involved in unregistered transactions.
Kwon Allegedly Misled Investors About UST Stablecoin
The SEC’s complaint also mentions the now-defunct UST algorithmic stablecoin, alleging that Kwon misled investors about the stability of UST assets when marketing them to “earn a profit.” This is not the first time Terraform Labs had a tussle with the U.S. securities regulator; in 2021, the SEC filed an action against the company over its mirrored stock assets while in 2022, a New York judge ordered Terraform Labs to comply with the SEC’s investigative subpoenas.
SEC Charging Company & CEO With Violating Registration & Anti-Fraud Provisions
The SEC is charging both Terraform’s employees and Kwon with violating registration requirements under the Securities Act and anti-fraud provisions under the Exchange Act for failing to provide “full, fair, and truthful disclosure” regarding LUNA tokens as well as Terra USD tokens they marketed to make profits out of them without registering them properly first.
SEC Chair Gary Gensler Comments On Charges Against Company & CEO
In response to these charges brought forward by the SEC against both Terraform Labs Pte Ltd., as well as its CEO Do Hyeong Kwon on Thursday afternoon; chair Gary Gensler commented: “We allege that Terraform and Do Kwon failed to provide the public with full, fair, and truthful disclosure as required for a host of crypto-asset securities…We also allege that they committed fraud by repeating false and misleading statements to build trust before causing devastating losses for investors”
Previous Enforcement Actions Taken By Regulators Against Crypto Companies
The SEC’s charges against Terraforms follows several other previous enforcement actions taken by regulators against other cryptocurrency companies such as Kraken over their staking services or New York Department of Financial Services’ orders issued towards Paxos directed at ceasing minting their PAX Gold token