Key points to remember
- The SEC filed a lawsuit against Terraform Labs and Do Kwon.
- He claims Kwon sold unregistered securities and violated anti-fraud provisions of federal securities laws.
- The agency wants civil fines, disgorgement, and a ban on Kwon from buying or selling crypto assets.
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Nine months after Terra’s spectacular collapse, the SEC finally decided to indict Do Kwon.
Banned from crypto
Do Kwon is back in the headlines.
The Securities and Exchange Commission filed a civil suit against Terraform Labs and its infamous CEO Do Kwon on Terra and its native algorithmic stablecoin, UST. The SEC accused the defendants of offering and selling various unregistered securities to investors and of violating anti-fraud provisions of federal securities laws.
Among other things, the agency is seeking civil monetary penalties, payment of a refund with interest, and a ban on Kwon and Terraform Labs from ever buying, selling, or offering “crypto asset securities.” .
“We allege that Terraform and Do Kwon failed to provide full, fair, and truthful disclosure to the public as required for a host of crypto asset securities, including LUNA and Terra USD,” declared SEC Chairman Gary Gensler. “We also allege that they committed fraud by repeating false and misleading statements to build trust before causing devastating losses to investors.”
Stablecoins are cryptocurrencies designed to stay at par with a government-issued currency, such as the US dollar. Terra’s stablecoin was under-collateralized, meaning it was not backed 1:1 with reserves. Instead, the protocol would burn Terra’s native token, LUNA, to mint an equivalent amount of UST or, conversely, mint LUNA tokens to trade UST. The flywheel mechanism eventually sent LUNA and UST into a death spiraldirectly wiping out over $40 billion worth of the crypto market.
Kwon is currently wanted in 195 countries, after Interpol issued a red notice against him. South Korean authorities claimed in December that he was hiding in Serbia.
Disclaimer: At the time of writing this article, the author of this article owned BTC, ETH, and several other crypto assets.