SEC says Terraform Labs built a 'house of cards' as US civil fraud trial begins
investing.comBy Jody Godoy
NEW YORK (Reuters) -Terraform Labs and its founder Do Kwon built a «house of cards» and lied to investors about the stability of a cryptocurrency whose collapse rippled through markets in 2022, a lawyer for the U.S. Securities and Exchange Commission told a Manhattan jury as its civil fraud trial began on Monday.
The SEC accused Kwon and the Singapore-based blockchain company of misleading investors in 2021 about the stability of TerraUSD, a stablecoin designed to maintain a value of $1. The regulator also accused them of falsely claiming Terraform's blockchain was used in a popular Korean mobile payment app.
«Terra was a fraud, a house of cards, and when it collapsed, investors lost nearly everything,» SEC attorney Devon Staren said at trial.
Louis Pellegrino, an attorney for Terraform, said the regulator's case relies on cherry-picked evidence and the testimony of witnesses hoping for whistleblower payouts if the SEC wins.
Kwon's attorney David Patton said the crypto entrepreneur never represented Terra's cryptocurrency as risk-free.
«Failure doesn't equal fraud,» Patton said.
Kwon will not attend the trial, which is expected to last around two weeks. He was arrested in Montenegro in March 2023 and is awaiting extradition to his native South Korea, where he faces criminal charges. A Montenegro court on Friday delayed his extradition after the prosecutor's office there voiced concerns about the process.
Federal prosecutors in New York have also charged Kwon with fraud and are seeking his extradition to the United States.
Kwon designed TerraUSD and Luna, a more traditional token that fluctuated in value but was closely linked to TerraUSD.
The SEC estimates that investors lost more than $40 billion on the
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