The Security and Exchange Commission in the US has charged Terraform Labs and the CEO, Do Kwon for fraudulent acts that led to the collapse of the Terra ecosystem. The financial regulatory body sued the company and the CEO with charges of “violating the registration and anti-fraud provisions of the Securities Act and the Exchange Act”.
According to the SEC, Do Kwon and the company it led raised billions of dollars from its inception in April 2018 using illegal procedures. The money realized from investors was in exchange for tradable crypto and other related assets that the SEC called securities.
A breakdown from the charges included “mAssets,” a crypto swap asset developed to follow the price of stocks of US companies; Terra USD, an algorithmic stablecoin pegged to the dollar and interchangeable with LUNA, one of Terraform’s tokens. The SEC also added that the already collapsed company also defrauded investors using its MIR (“mirror” tokens).
Terra USD to yield 20% interest
Further findings by the SEC revealed that Terraform sold crypto assets to users with claims that they will appreciate and yield profits over time. For its Terra USD asset, the company projected a 20% interest for investors via the Anchor protocol. In 2021, Terra launched Anchor as a DeFi project integrated into Terra-Luna that produces yield for those who deposit Terra USD in it.
Another allegation against Terra is the false information it gave to the public stating that a major payment platform in South Korea was using the Terra blockchain as its settlement infrastructure which can provide added value to the Terra ecosystem. Did Kwon also misdirected investors on the stability of UST which showed up when it collapsed in Q2 2022?
Do Kwon on the run
When Terra Labs collapsed in 2022, Do Kwon was declared wanted in South Korea but was not arrested for more than a year. The Korean government also declared his passport invalid in a bid to clamp down on him. Yet, it wasn’t successful.
Other steps taken to get hold of Do Kwon included a red notice by Interpol, a second-stage investigation by the SEC, and a travel ban on all employees of Terraform.
The SEC and surveillance of crypto firms
The chairman of the SEC, Gary Gensler noted that Do Kwon committed fraud by lying to investors and the general public on the nature of the firm before it went under. “I commend the SEC’s hard-working staff who remained vigilant in such an important investigation, even when the defendants attempted to prevent us from obtaining important information about their business,” he said.
Gary also said that the situation exposes the criminalities explored by certain crypto firms by going against stated rules for running financial institutions.
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