The US Securities and Exchange Commission (SEC) recently accused Terraform Labs, a Singapore-based company, and its co-founder Do Kwon of promoting a multi-billion dollar fraud by offering and selling unregistered securities through the use of crypto assets. The SEC’s complaint alleges that Terraform and Kwon marketed unregistered securities of crypto assets to seek their own benefit, and misled investors by claiming that the tokens increased in value and that they were working alongside a Korean mobile payment application. The SEC also claims that Terraform offered other investments like mAssets and MIR tokens, which were also labeled as securities.
The SEC further alleges that Terraform and Kwon made deceptive arguments to promote their fraud, and caused losses of billions of dollars to both retail and institutional investors. Gary Gensler, Chairman of the SEC, said that the defendants committed fraud by asserting “false and misleading statements” about the Terra LUNA project. The SEC’s Division of Enforcement also emphasized that the complaint demonstrates that the Terra ecosystem was not at all decentralized but a “fraud propped up by a so-called algorithmic ‘stablecoin’ (UST)”.
The collapse of the Terra stablecoin has once again drawn attention to the issue of stablecoin regulation. Stablecoins are digital assets designed to maintain a stable value relative to a fiat currency or another asset, and facilitate fiat-to-crypto transactions on exchanges and provide a stable store of value for users. However, their lack of regulatory oversight has raised concerns among regulators worldwide. Do Kwon, who is currently a fugitive reportedly hiding in Serbia, has assured several times that he is not evading the authorities. The SEC’s investigation into Terraform and Kwon is ongoing.