SEC Sues Terra Founder for Fraud, Says Kwon Removed 10,000 Bitcoin From Ecosystem
The U.S. Securities and Exchange Commission sued Terraform Labs and its CEO Do Kwon for a multi-billion dollar fraud involving the algorithmic stablecoin TerraUSD (UST) and said Kwon transferred more than 10,000 bitcoin from the Terra ecosystem to a wallet that wasn’t on a digital exchange when UST started crashing last May.
Terra and LUNA collapsed in May, erasing almost $18 billion of Terra’s market value and jolting the industry in a foretaste of the FTX meltdown that brought it to its knees.
TerraUSD was a stablecoin with a 1:1 peg to the U.S. dollar maintained through another cryptocurrency, LUNA. An algorithm would convert LUNA to UST or UST to LUNA to manage supply and keep the peg intact.
«The Terraform ecosystem was neither decentralized, nor finance,” said Gurbir S. Grewal, Director of the SEC’s Division of Enforcement. “It was simply a fraud propped up by a so-called algorithmic 'stablecoin'—the price of which was controlled by the defendants, not any code.”
The SEC’s suit reiterated the regulator’s stance that stablecoins are securities and their sale, if not registered with the SEC, violates federal securities laws. It also took aim at Kwon for moving large amounts of bitcoin from the Terra ecosystem into a cold wallet as UST collapsed. Finally, the SEC said Terraform and Kwon misled investors with false promises of high returns.
Terraform and Kwon “offered and sold crypto asset securities in unregistered transactions and perpetrated a fraudulent scheme that led to the loss of at least $40 billion of market value, including devastating losses for U.S. retail and institutional investors,” the SEC said.That includes the sale of crypto securities called ‘mAssets,’ which were swaps that mirrored the price of
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