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A New York jury has found Terraform Labs and co-founder Do Kwon liable for defrauding crypto investors as part of an alleged scheme that caused losses of $40 billion in market capitalization. did.
The civil verdict, handed down after a nine-day trial in Manhattan federal court, is a victory for the U.S. Securities and Exchange Commission as regulators begin cracking down on the cryptocurrency sector. Last year, the SEC charged a bankrupt stablecoin operator and Mr. Kwon with collecting billions of dollars from investors by selling multiple linked digital securities, many of which were not registered with regulators. did.
Those assets included TerraUSD, a stablecoin developed by Kwon that rocked the cryptocurrency industry with its sudden collapse in 2022, and the related Luna token, the SEC said.
Terraform and Kwon “inflicted devastating losses on investors, wiping out tens of billions of dollars in market value almost overnight,” Gurbir Grewal, director of the SEC’s Enforcement Division, said Friday after the ruling.
They “misled investors about the crypto asset security and stability of the so-called algorithmic stablecoin TerraUSD, and further misled investors about whether the popular payment application uses Terraform’s blockchain to process and settle payments.” “I let it happen,” he added.
“We are extremely disappointed in this ruling and do not believe it is supported by the evidence,” Terraform said Friday. “We continue to believe that the SEC has no legal authority to bring this action. “We are carefully considering our options and next steps.”
The agency’s chairman, Gary Gensler, is ramping up scrutiny of what he calls a “wild west” of compliance violations and illegal activity. He argued that many digital tokens qualify as securities and are subject to SEC jurisdiction.
“Despite the promise of cryptocurrencies, the lack of registration and compliance has very real consequences for real people,” Grewal said.
It also deals another blow to Terraform and its South Korean chief executive, who have faced legal challenges, including criminal fraud charges, following the collapses of TerraUSD and luna.
Kwon, who was living in South Korea and Singapore at the time of the fraud charges, is also in the midst of a fierce extradition battle. Wanted on criminal charges by the United States and South Korea, he is being held in Montenegro and did not appear at his civil trial in Manhattan.
In a complaint filed last year, the SEC accused Terraform and Kwon of masterminding a massive cryptocurrency fraud between April 2018 and May 2022, resulting in $40 billion in lost market value.
Regulators say the defendants made misleading statements about digital assets, including telling investors that South Korea’s popular mobile payment app was using the Terra blockchain to settle transactions that increased the value of Luna tokens. He said he sold it.
Terraform filed for Chapter 11 bankruptcy protection in Delaware earlier this year.
Kwon’s lawyer did not respond to a request for comment.
