In Q2 2022, the TerraUSD (USDT) stablecoin collapsed with an estimated $60 billion wipeout, shaking the global digital currency market. The USDT crash marked the begin of Crypto Winter with the collapse of other major crypto schemes. The U.S. Securities and Exchange Commission (SEC) charged Singapore-based Terraform Labs PTE Ltd and Do Kwon with orchestrating a multi-billion dollar crypto asset securities fraud involving an algorithmic stablecoin and other crypto asset securities.
According to the SEC’s complaint, from April 2018 until the scheme’s collapse in May 2022, Terraform and Do Kwon raised billions of dollars from investors by offering and selling an inter-connected suite of crypto asset securities, many in unregistered transactions. These included Terra USD (UST), an “algorithmic stablecoin,” and its sister coin, LUNA. While other stablecoins (USDC or Tether) are fiat-backed, the UST was backed by its sister token, LUNA.
The SEC’s complaint alleges that Terraform and Kwon marketed crypto asset securities to investors seeking to earn a profit, repeatedly claiming that the tokens would increase in value. For example, they touted and marketed UST as a “yield-bearing” stablecoin, which they advertised as paying as much as 20 percent interest through the Anchor Protocol. While marketing the LUNA token, Terraform and Do Kwon repeatedly misled and deceived investors. In May 2022, UST depegged from the U.S. dollar, and the price of it and its sister tokens plummeted to close to zero.
“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,” s “We also allege that they committed fraud by repeating false and misleading statements to build trust before causing devastating losses for investors.”
SEC Chair Gary Gensler
“Today’s action not only holds the defendants accountable for their roles in Terra’s collapse, which devastated both retail and institutional investors and sent shock waves through the crypto markets, but once again highlights that we look to the economic realities of an offering, not the labels put on it,” said Gurbir S. Grewal, Director of the SEC’s Division of Enforcement.
In Sept 2022, a court in South Korea issued an arrest warrant for Do Kwon. His current whereabouts are unknown, but the Terra co-founder was recently believed to be in Serbia, according to South Korean intelligence.
