© Reuters
By Ambar Warrick
Investing.com — The Securities and Exchange Commission said Thursday it is charging Singapore-based Terraform Labs and its founder Do Kwon with defrauding investors in a “crypto-asset securities fraud by several billion dollars.”
These accusations come almost a year after the collapse of the Terra Luna and Terra USD (UST) tokens, which skyrocketed in value by more than $30 billion in a matter of days.
The SEC alleges that Terraform and Do Kwon misled investors on several points, including the assurance of their tokens’ returns, the way payments were processed on their platforms, and the stability of the algorithmic stablecoin UST .
The collapse of UST was at the heart of Terra’s downfall in May, when the token fell sharply against $1 and never recovered. Terra Do Kwon reportedly fled after the crash, which also drew an investigation from South Korean authorities.
“We allege that Terraform and Do Kwon failed to provide the public with full, fair and truthful information as required for a host of crypto-asset securities, most notably LUNA and Terra USD,” said Gary Gensler, Chairman of the SEC.
The SEC complaint alleges that Terraform lied about the Korean payment app, Chai, using the Terra blockchain to process transactions.
The complaint also alleges that Kwon entered into a secret agreement with a third party to support UST parity in May 2021, and then made misleading statements touting the viability of the stablecoin algorithm.
Without such support when the token depreciated a year later, UST quickly collapsed and caused an implosion of the Terra blockchain.
“The Terraform ecosystem was neither decentralized nor financial. It was simply a fraud supported by a so-called algorithmic ‘stablecoin’ – the price of which was controlled by the defendants, not by any code” said Gurbir S. Grewal, director of the SEC’s Division of Enforcement.
Terra’s collapse had caused a wave of bankruptcies in the cryptocurrency market, and was widely seen as the start of a prolonged market downturn, as regulators circled around and retail investors grew more wary.
The SEC’s accusations against Terra are part of a broader crackdown on the cryptocurrency industry, with recent actions also being .
The price of fell more than 3% on Friday, while fell 2%.