The US Securities and Exchange Commission filed charges against Terraform Labs PTE Ltd and Do Kwon on Feb. 17. They were accused of perpetrating a scam involving algorithmic stablecoins and other crypto asset securities that totalled multiple billion dollars.
According to the complaint filed by the SEC, Terraform and Kwon raised billions of dollars from investors between April 2018 and May 2022, when the scheme finally came crashing down. The crash has so far been linked with several parties. Per SEC, they did this by offering and selling an interconnected suite of crypto asset securities, the majority of which were conducted in unregistered transactions.
These included “mAssets,” which are security-based swaps intended to pay returns by replicating the price of assets of US companies, and Terra USD (UST), a cryptocurrency asset security attributed to as an “algorithmic stablecoin.”
Terra USD (UST) was supposed to have maintained its peg to the U.S. dollar by being interchangeable with another one of the defendants’ crypto asset securities called LUNA.
Both of these products were included in the investigation. In addition, the lawsuit claims that Terraform and Kwon provided and sold investors alternative ways to participate in their cryptocurrency business. These allegedly include the crypto asset security tokens known as MIR (also known as “mirror” tokens), as well as LUNA itself.
According to the SEC’s lawsuit, Terraform and Kwon misrepresented the value of their tokens while selling them as securities to investors. They promoted UST, for instance, as a “yield-bearing” stablecoin that would pay up to 20% interest through the Anchor Protocol.
The SEC further says that Terraform and Kwon lied to and mislead investors when they promoted the LUNA token by saying that a prominent Korean mobile payment app utilized the Terra blockchain to settle transactions, which would increase the value of the token.
Meanwhile, investors claim that Terraform and Kwon lied to them regarding UST’s security. The price of UST and its sibling tokens almost hit zero in May 2022 when they were depegged from the US dollar.
