Terraform Labs and Founder Found Liable for Crypto Asset Securities Fraud

Do Kwon

  • A jury in a New York court has found Do Kwon liable for defrauding investors through the $40 billion crypto disaster orchestrated by Terraform Labs through LUNA and UST cryptos.
  • Terraform Labs said it’s disappointed with the ruling and vowed to fight back, claiming that the SEC has no authority against the company or its founders.

Do Kwon and his company Terraform Labs (TFL) are liable for defrauding investors through the $40 billion crypto catastrophe that was LUNA and UST. This is the ruling of a jury in a New York court that handed the victory to the Securities and Exchange Commission (SEC) in its case against the fallen crypto king.

The Manhattan court has presided over the case between the SEC and TFL/Kwon for the past two weeks. The SEC alleged that Kwon and his company misled American investors about the stability of TerraUSD, or UST, the company’s algorithmic stablecoin. UST folded like a house of cards in mid-2022, taking out its sister token, LUNA, and eroding over $40 billion in investor funds, as Crypto News Flash reported at the time.

The jury listened to testimonies from both sides, with the prosecutors parading investors who lost their entire savings to Kwon’s scam. They also brought on whistleblowers with connections to TFL who revealed that Kwon knew that he was misleading investors the whole time.

Besides the actual con, Kwon faced accusations of other fraudulent acts. One included lying that Chai, a popular payments platform in South Korea, was using Terra’s blockchain to settle transactions. He also made a secret deal with Jump Trading, a high-frequency trading giant, to prop up the value of UST when it dipped below $1. In messages presented at the court, one employee told another that the trading firm “saved our ass.”

Laura Meehan, an attorney for the SEC, told the court that the entire Terra success story was fabricated to lure investors, adding:

If you swing big and you miss, and you don’t tell people that you came up short, that is fraud,

Terraform Labs Condemns Ruling

Immediately after the jury ruling, TFL condemned the court and pleaded innocence. It claimed that the entire case was built on statements taken out of context to suit the SEC’s narrative. It further argued that the company and Kwon were always truthful about the products. Additionally, the company was still working on the mission it started years ago despite all the turmoil, said TFL lawyer Louis Pellegrino, adding:

Terraform is still out there, trying to rebuild and make purchasers whole.

Despite being found liable, Kwon will not face a prison sentence as this was a civil case. The court will, however, decide on the appropriate fines and disgorgement.

Kwon was unavailable in Manhattan as he’s still in Montenegro, where he was arrested and jailed last year. While he has completed his prison sentence, a battle for his extradition between the US and his native South Korea has derailed him.

Should he be extradited to the US, he will face criminal fraud charges. His trial is likely to be in the same court where he was found liable for civil charges, which is the same court that sentenced Sam Bankman-Fried to a quarter of a century in prison.

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