SEC indicts Do Kwon

The US Securities and Exchange Commission (SEC) has charged Terraform Labs (TFL) and its CEO Do Kwon with orchestrating a multi-billion dollar securities fraud.

“[…] from April 2018 until the collapse of the scheme in May 2022, Terraform and Kwon raised billions of dollars from investors by offering and selling an interconnected set of crypto-asset securities,” the post reads.

In particular, the SEC included the algorithmic stablecoin TerraUSD (UST) and the LUNA token. The department added that the Singaporean company, along with its head, misled investors, promising an increase in asset prices and assuring them of their stability.

According to the head of the regulator Gary Gensler, Terraform and Do Kwon did not provide the public with “full, fair and honest disclosure.”

“We also allege that they committed fraud by repeating false and misleading statements in order to gain credibility before inflicting devastating losses on investors,” he stressed.

The head of the SEC noted that this case demonstrates “the lengths some crypto firms are willing to go to avoid complying with securities laws.”

“Today’s action not only holds the Defendants responsible for their role in the Terra crash, which devastated both retail and institutional investors and shocked the cryptocurrency markets, but re-emphasizes that we are looking at the economic realities of the offering, not labels. hung on him. […] It was just a scam backed by a so-called algorithmic stablecoin whose price was controlled by the defendants and not by any code,” added SEC Director of Enforcement Gurbir Grewal.

According to a press release, the complaint has been filed with the Southern District of New York.

Delphi Digital General Counsel Gabriel Shapiro called the vector chosen by the SEC a “roadmap” for pursuing stablecoins. In his opinion, the work carried out in the case of Kwon and TFL was “more thorough than usual.”

“[SEC] will argue that the integration, promotion, marketing, commercial transactions, etc. that create stablecoin ecosystems are “the efforts of others” that are “reasonably expected” and can lead to profit,” Shapiro explained.

Bankless podcast host Ryan Sean Adams expressed a similar sentiment. He noted that the SEC’s victory in this case “will set a broad precedent for greater control over cryptocurrencies.”

Earlier, the situation around the project attracted the attention of South Korean regulators. The Seoul Southern District Prosecutor’s Office also became interested in TFL’s activities, and the court issued an arrest warrant for Do Kwon and five other people.

The head of Terraform Labs said he was not “on the run” and was cooperating with law enforcement. At the end of September 2022, Bloomberg learned about the issuance of a “red notice” by Interpol about his detention.


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