Securities and Exchange Commission (SEC) officials have detailed a complaint alleging Singapore-based Terraform Labs PTE Ltd and Do Hyeong Kwon orchestrated crypto asset securities fraud.
The SEC alleges the fraud involved 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 Kwon allegedly raised billions of dollars from investors by offering and selling an inter-connected suite of crypto asset securities, including assets, security-based swaps designed to pay returns by mirroring the price of stocks of US companies, and Terra USD (UST), a crypto asset security referred to as an “algorithmic stablecoin” that supposedly maintained its peg to the U.S. dollar by being interchangeable for another of the defendants’ crypto asset securities, LUNA.
According to the SEC, the complaint filed in the U.S. District Court for the Southern District of New York charges the defendants with allegedly violating the registration and anti-fraud provisions of the Securities Act and the Exchange Act.
“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,” SEC Chair Gary Gensler said. “We also allege that they committed fraud by repeating false and misleading statements to build trust before causing devastating losses for investors.”
SEC Division of Enforcement Director Gurbir S. Grewal said the agency’s action holds the defendants accountable for their roles in Terra’s collapse.
“As alleged in our complaint, the Terraform ecosystem was neither decentralized nor finance,” Grewal said. “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.”