Do Kwon, co-founder and chief executive officer of Terraform Labs, in the company’s office in Seoul, South Korea, April 14, 2022.
WoohaeCho | Bloomberg | beautiful pictures
The Securities and Exchange Commission charged Terraform Labs and its CEO, Do Kwon, with fraud, alleging that they orchestrated a “crypto asset securities fraud” worth thousands of dollars. billion dollars. The SEC said on Thursday.
Kwon and Terraform allegedly planned from April 2018 until TerraUSD, also known as UST, and its sister coin luna collapsed in May 2022 to raise billions of dollars from cryptocurrencies. investors through the offering and sale of a “connected set of cryptocurrencies” of asset securities, including securities-based swaps that mirror U.S. stocks and most famously the so-called “algorithmic stablecoin” TerraUSD. According to the complaint, the company advertised the UST as a “profitable” currency, offering to pay interest up to 20%.
Like many stablecoins, UST is pegged 1 to 1 to the dollar. Casting a new UST requires “burning” or destroying a luna. This structure allows for arbitrage opportunities that are key to staying locked: Users can always swap one luna for UST and vice versa for a guaranteed price of $1, regardless of the market price. field of either token at that time.
But luna’s price became increasingly volatile and forced UST to break through its $1 fix, an effort that sent both terra and luna skyrocketing.
Complaints against Kwon and Terraform were filed in federal court for the Southern District of New York in Manhattan, and allege both violated the registration and anti-fraud provisions of both the Securities and Exchange Act. pandemic.
The SEC alleges that Kwon marketed those assets, including the mAsset and Terra swaps, as profitable securities, “repeatedly claiming” the tokens would increase in value.
“Today’s actions not only hold the defendants accountable for their role in the downfall of Terra, which devastated both retail and institutional investors, and caused shaken the cryptocurrency market, which again emphasizes that we look at the economic reality of an offering, not the label that put it on,” SEC enforcement director Gurbir Grewal said in a statement. dad.
The UST dropped in price once before the last trading pair crashed in 2022. In May 2021, the SEC alleges, Terra fell below $1 and in response, Kwon conspired with a third party. Three unnamed people bought UST in bulk to restore the “algorithm” of piles. Publicly, Kwon and Terraform declared it a victory for the algorithm, the SEC alleges and called it a “black swan” event.
According to Korean intelligence, Kwon’s current whereabouts are unknown, but the Terra co-founder was recently reported to be in Serbia. Kwon is wanted in Korea for his involvement in the collapse of TerraUSD.
