The US Securities and Exchange Commission (SEC) has charged Terraform Labs and its chief executive officer Do Kwon with fraud, alleging that the “father” of virtual currency Luna orchestrated an “asset securities fraud” of cryptocurrencies” worth billions of dollars.
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According to the SEC announcement on February 16, Do Kwon and Terraform allegedly planned from April 2018 until TerraUSD, also known as UST. The Luna coin collapsed in May 2022, to raise billions of dollars from investors through stock-based swaps that mirror US stocks and most famously the so-called “algorithmic stablecoin” TerraUSD.
According to the SEC complaint, the company advertised UST as an “interest-bearing” coin, offering to pay interest up to 20%. Like many stablecoins, the UST is pegged at a 1-to-1 ratio to the USD. Casting a new UST requires “burning” or destroying a LUNA.
This structure allows for arbitrage opportunities that are key to maintaining a fixed rate: Users can always swap luna for UST and vice versa for a guaranteed price of 1 USD, regardless of the market price of either token at the time.
But the price of the LUNA became increasingly volatile and forced the UST to break the $1 fix, a move that sent both the terra and the LUNA skyrocketing, initially leading to the LUNA crash in May 2022. cost investors billions of dollars.
The complaint against Kwon and Terraform was filed by the SEC in federal court for the Southern District of New York in Manhattan and alleges both violated the registration and anti-fraud provisions of both the Securities and Exchange Acts. Transaction.
Reportedly, the complaint is up to 55 pages long. In it, SEC Chairman Gary Gensler accused Do Kwon and Terraform of “failing to provide all investors with complete, fair, and truthful information” regarding Terra (LUNA) and TerraUSD (UST).
We allege that Terraform and Do Kwon failed to provide all investors with the required complete, fair, and truthful public information for a range of crypto asset securities. They committed fraud by repeating false and misleading statements to build trust before causing heavy losses to investors.”
The SEC also alleges that Kwon marketed those assets, including the mAsset and Terra swaps, as profitable securities, “repeatedly claiming” the tokens would increase in value.
“Today’s action not only holds the defendants accountable for their role in the downfall of Terra, which has damaged retail and institutional investors, and caused shockwaves throughout the crypto market, which again underscores that we look at the economic reality of an offering, not the label,” said SEC Director of Enforcement Gurbir Grewal. According to Korean intelligence, currently, Do Kwon is still in hiding after being wanted by Interpol, but the “father” of luna is said to be in Serbia recently.
The collapse of Terra is known as a horror for Crypto investors. In just 10 days, from a billion-dollar empire, Terra collapsed and returned to 0. Luna’s ATH price was 115 USD on April 5, 22 with the new bottom price being divided more than 100 million times.