Terraform Labs Found Liable in Civil Fraud Case

Terraform Labs and Do Kwon Liable for Civil Fraud

A jury in Manhattan has found Terraform Labs and its founder, Do Kwon, liable for civil fraud. The U.S. Securities and Exchange Commission (SEC) accused them of misleading investors about TerraUSD, a stablecoin, before its collapse in 2022. The stablecoin, designed to maintain a $1 value, failed to do so, causing investor losses exceeding $40 billion.

SEC's Allegations and Verdict

The SEC claimed Terraform and Kwon misrepresented TerraUSD's stability and falsely promoted their blockchain's usage in a popular Korean payment app. The verdict followed a two-week trial, where the SEC argued that the platform's success was based on deception. The regulator is pursuing financial penalties and industry bans for Kwon and Terraform.

Impact on the Cryptocurrency Market

The collapse of TerraUSD and its counterpart, Luna, resulted in a significant downturn across the crypto market. This collapse affected major cryptocurrencies like Bitcoin and led several companies to file for bankruptcy. Terraform itself sought bankruptcy protection in January 2023.

Legal Repercussions and Future Actions

U.S. District Judge Jed Rakoff will decide on penalties soon. Terraform expressed disappointment with the verdict and is considering its options, maintaining that the SEC lacks authority in the case. The SEC has highlighted the importance of compliance in the crypto market, signaling the need for regulation.

Do Kwon's Legal Challenges

Kwon, absent from the trial due to arrest in Montenegro, faces extradition requests from both the U.S. and South Korea on criminal charges. The SEC revealed that Kwon and Terraform allegedly manipulated TerraUSD's price by secretly arranging third-party purchases. This action, coupled with misleading claims about blockchain usage, has been central to the SEC's case.

The case highlights the urgent need for increased regulatory oversight in the rapidly evolving cryptocurrency sector. As Terraform plans to appeal, the industry watches closely for future developments.