Terraform Labs and Co-founder Accused by SEC of Multi-Billion Dollar Crypto Fraud
Summary:
During the opening day of its civil trial, Terraform Labs was portrayed by SEC attorneys as a fraudulent enterprise where investors lost nearly everything. A lawsuit was filed against the blockchain firm and co-founder Do Kwon in February 2023, alleging they orchestrated a multi-billion dollar crypto asset securities fraud. Kwon, who was absent on the first day, was previously arrested for using falsified travel documents and awaits extradition to either the U.S. or South Korea. The SEC accused the duo of misleading investors about the stability of TerraUSD (UST), contributing to a significant crypto market downturn in 2022. The trial is one amongst many anticipated in the crypto sector in 2024.
During the first day of its civil trial, Terraform Labs was portrayed as an unjustly catastrophic enterprise by attorneys for the United States Securities and Exchange Commission (SEC) - a place where investors tied up their wealth and "almost lost everything". On March 25, as reported by Reuters, Devon Staren, a prosecutor from the SEC, made a metaphorical comparison in front of the U.S. District Court for the Southern District of New York, declaring that in 2022 Terra's structure was as fragile as a “house of cards” for its investors. The commencement of the civil trial took place over one year after the SEC lodged a legal complaint against the blockchain company in February 2023, accusing Terra and its co-founder Do Kwon of carrying out a massive fraudulent operation involving several billions worth of crypto assets.
Reuters reported that Do Kwon was notably absent on the initial day of the trial. Kwon, the co-founder of Terraform Labs, was detained in Montenegro in March 2023 for the illegal use of travel documents and punished with a four-month jail term. Surprisingly, he was discharged on the 23 of March while his extradition to the U.S. or his homeland, South Korea, was still undecided.
The SEC has made allegations that Kwon and Terra deliberately misrepresented information to investors regarding the solidity of TerraUSD (UST), a stablecoin dependent on an algorithm that deviated from the value of the U.S. dollar. This instability of Terra (LUNA) and similar tokens probably contributed to a major meltdown in the crypto market in 2022 in which several entities went into bankruptcy.
Despite its initial plan to start in January, the trial was adjourned until March due to the SEC and Kwon’s legal representatives expecting Kwon to participate in his defense in court. By December 2023, Judge Jed Rakoff had passed a favorable ruling for the SEC concerning Terra's engagement with unregistered securities and for Kwon and the platform with respect to the availability and sale of security-based swaps.
The court trial of Terraform is only one among the multitude of court cases pertaining to the world of cryptocurrency in the year 2024. On March 28, the former chief executive officer of FTX, Sam Bankman-Fried, will face court sentencing after being found guilty on seven felony counts. Similarly, the former CEO of Binance, Changpeng Zhao, is projected to be sentenced on April 30 following his confession of guilt on a felony charge.
Published At
3/25/2024 9:25:00 PM
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