In a significant ruling, Terraform Labs and its CEO Do Kwon have been found liable for fraud in a Securities and Exchange Commission (SEC) trial, according to a recent report by Bloomberg. The SEC had accused Terraform Labs and Do Kwon of making false and misleading statements to investors about the company’s stablecoin TerraUSD, as well as the relationship between TerraUSD and Terraform’s cryptocurrency, LUNA.
Allegations and Charges
The SEC alleged that Terraform Labs and Do Kwon made false claims about the stability of TerraUSD, known as an “algorithmic” stablecoin, and misled investors about the benefits of the TerraUSD-LUNA ecosystem. The regulator also accused the company and its CEO of failing to register the offer and sale of LUNA and TerraUSD as securities, in violation of federal securities laws.
Liability and Potential Consequences
In the ruling, the judge found Terraform Labs and Do Kwon liable for the alleged fraud, setting the stage for potential penalties and other remedies. The SEC is likely to seek significant monetary fines and possibly a ban on Do Kwon and others from participating in the cryptocurrency industry in the future. The collapse of the TerraUSD and LUNA tokens last year caused significant losses for investors, leading to the SEC’s enforcement action.