Feb 17, 2023
SEC Charges Terraform Labs with $Multi-Billion Crypto Asset Securities Fraud
The U.S. Securities and Exchange Commission (SEC) has filed a lawsuit against Terraform Labs and its founder Do Kwon, accusing them of orchestrating a multi-billion dollar crypto asset securities fraud.
On February 16, the SEC issued a statement alleging Kwon and Terraform had sold an inter-connected suite of crypto asset securities without registering them. In particular, the SEC took issue with Terraform’s algorithmic stablecoin TerraClassicUSD (USTC), its connected cryptocurrency Terra Luna Classic (LUNC), and its Mirror (MIR) governance token for the Mirror protocol which lists mAssets.
SEC chair Gary Gensler commented on the case, saying Kwon and Terraform had “failed to provide the public with full, fair, and truthful disclosure” about USTC and LUNC, and had “committed fraud by repeating false and misleading statements to build trust before causing devastating losses for investors.”
The SEC’s complaint, filed in the U.S. District Court for the Southern District of New York, outlines the ways in which Terraform and Kwon allegedly violated the registration and anti-fraud provisions of the Securities Act and the Exchange Act.
In particular, the SEC claims Terraform and Kwon “touted and marketed” their Anchor Protocol, which offered 20% interest on USTC deposits, and misled investors about the stability of Terra’s stablecoin. In May 2022, USTC lost its peg to the U.S. dollar causing its price and the price of LUNC to effectively collapse to zero, leading to a wider collapse in the digital asset market that wiped an estimated $40 billion in value.
Gensler praised the SEC’s staff for their investigation, adding that the defendants had attempted to prevent the SEC from obtaining important information about their business. He also stated that the case “demonstrates the lengths to which some crypto firms will go to avoid complying with the securities laws.”
Kwon, a South-Korean national, is currently at-large and believed to be in Serbia after leaving his residence in Singapore in September 2022. Interpol has issued a Red Notice for Kwon to law enforcement worldwide.
Terraform Labs has not responded to Cointelegraph’s request for comment, and Kwon could not be reached. Terraform has claimed that South Korea’s case against Kwon is “highly politicized.”
The news of the SEC’s lawsuit has once again highlighted the importance of NFT promotion, crypto marketing, and NFT marketing. As the web3 space continues to grow and evolve, it’s becoming increasingly important for companies to have a comprehensive NFT marketing strategy in place. This includes utilizing Twitter NFT marketing, working with a NFT marketing agency, and leveraging the services of a web3 agency.
For those looking to sell NFTs, it’s essential to ensure that all marketing practices are compliant with the relevant regulations. This includes providing full, fair, and truthful disclosure to investors. Companies should also be aware of the risks associated with selling NFTs, as the SEC’s lawsuit against Terraform Labs shows.
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