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Tuesday, May 30, 2023

Terraform Labs and CEO Do Kwon Charged by SEC With Multibillion-Dollar Crypto Fraud

Terraform Labs and CEO Do Kwon Charged by SEC With Multibillion-Dollar Crypto Fraud – The U.S. Securities and Exchange Commission (SEC) has charged Terraform Labs Pte. Ltd., a Singaporean company, and its CEO, Do Kwon, with a multibillion-dollar crypto fraud, following the collapse of the entire Terra blockchain ecosystem nine months ago. According to the SEC’s announcement on Thursday, Terraform Labs and Kwon raised significant funds from venture capitalists by developing a range of unregistered securities and mirrored assets that imitated the worth of U.S. equities.

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The government’s complaint also mentions the now-defunct UST algorithmic stablecoin. The regulator stressed that both Terraform’s employees and Kwon marketed these unregistered securities to “earn a profit,” and detailed that Kwon “repeatedly claimed that the tokens would increase in value.” Regarding the algorithmic stablecoin UST, Kwon “allegedly misled investors about the stability of UST,” the SEC complaint notes. 

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Terraform Labs has previously clashed with the U.S. securities regulator in a legal dispute over the Mirror Protocol and its mirrored stock assets in 2021. Furthermore, in 2022, a judge in New York mandated that Terraform Labs should comply with the SEC’s investigative subpoenas. The SEC has now accused both the company and its CEO, Do Kwon, of breaching the registration and anti-fraud provisions of the Securities Act and the Exchange Act.

“We allege that Terraform and Do Kwon failed to provide the public with full, fair, and truthful disclosure as required for a host of crypto-asset securities, most notably for LUNA and Terra USD,” SEC chair Gary Gensler said in a statement. Gensler further added: “We also allege that they committed fraud by repeating false and misleading statements to build trust before causing devastating losses for investors.”

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The SEC has brought charges against Terraform and Kwon, following its previous enforcement actions against Kraken and its staking services. In addition, the New York Department of Financial Services (NYDFS) has informed Paxos that it can no longer create the stablecoin BUSD, and has also issued a consumer notice about BUSD. The SEC’s complaint against Kwon and Terraform has been filed with the US District Court for the Southern District of New York. Notably, Do Kwon has not been active on Twitter since the first week of February 2023.


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