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US Charges Terraform Labs Founder With Fraud
The US Securities and Exchange Commission have charged Do Kwon, founder of collapsed blockchain firm and stablecoin operator Terraform Labs in a landmark crypto case.
Last year’s collapse of Singapore-based Terraform labs – said to have cost investors more than $40bn – has now seen it’s founder being charged with fraud as financial regulators accuse him of “orchestrating a multi-billion dollar crypto asset securities fraud.”
From April 2018 to May 2022, Terraform labs sold an inter-connected suite of crypto-assets and securities, “many in unregistered transactions,” according to regulators.
In a statement from SEC Chairman Gary Gensler said “”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.”
“We also allege that they committed fraud by repeating false and misleading statements to build trust before causing devastating losses for investors”.
The collapse of Terraform’s stablecoin was the start of an industry-wide reckoning for many crypto-firms, with 3AC, Celsius and FTX serving as other high-profile failures, with the latter two also very much guilty of dubious practices.
The SEC also alleged Mr Kwon and Terraform claimed repeatedly that the tokens would increase in value, and misled investors about the stability of TerraUSD.
However, the value of the token and its linked Luna cryptocurrency plunged to close to zero in May last year.
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Earlier this month, prosecutors in South Korea traveled to Serbia, which has emerged as a likely place where Kwon is staying. His whereabouts remain unknown after Interpol issued a red notice for Kwon in September.
Gensler added: “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.
“As alleged in our complaint, the Terraform ecosystem was neither decentralized nor finance. It was simply a fraud propped up by a so-called algorithmic ‘stablecoin’ — the price of which was controlled by the defendants, not any code.”
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