A Manhattan jury on Friday found Singapore-based Terraform Labs and its founder Do Kwon liable for civil fraud, agreeing with the Securities and Exchange Commission that they had misled investors before the collapse of their stablecoin in 2022 does not shock the cryptocurrency markets.
The jury returned the verdict in Federal Court after a two-week trial after hearing closing arguments earlier in the day.
The SEC accused the company and Kwon of misleading investors in 2021 about the stability of TerraUSD, a stablecoin designed to maintain a value of $1. The regulator also accused them of falsely claiming that Terraform’s blockchain had been used in a popular Korean mobile payment app.
SEC attorney Laura Meehan said during closing arguments that the platform’s success was based on lies.
“If you hit it big and you miss, and you don’t tell people you failed, that’s fraud,” Meehan said.
Louis Pellegrino, Terraform’s attorney, told the jury Friday that the SEC’s case relied on statements taken out of context and that Terraform and Kwon had told the truth about their products and how they worked, even when they failed.
“Terraform is still here, trying to rebuild and restore integrity to buyers,” he said.
The regulator is seeking civil financial penalties and orders barring Kwon and Terraform from the securities industry.
Kwon, who was arrested in Montenegro in March 2023, did not attend the trial, which began on March 25. The United States and South Korea, of which Kwon is a citizen, have requested his extradition on criminal charges.
Kwon designed TerraUSD and Luna, a more traditional token whose value fluctuated but was closely related to TerraUSD.
The SEC estimates that investors lost more than $40 billion on the two tokens combined when TerraUSD’s dollar peg failed to be maintained in May 2022.
Their collapse also caused the value of other cryptocurrencies, including bitcoin, to decline and wreak greater havoc on the crypto market, leading several companies to file for bankruptcy in 2022.
Terraform itself filed for bankruptcy protection in January.
The SEC said Kwon and Terraform secretly arranged for a third party to purchase large quantities of TerraUSD to prop up the price when the stablecoin slipped from its peg a year earlier, in May 2021. Kwon falsely attributed the recovery to the reliability of TerraUSD algorithms. , according to the regulator.
The SEC also said Kwon and Terraform falsely touted Terraform’s blockchain as being used to process and settle transactions between customers and merchants on the Chai payment app.
Pellegrino said Friday that Terraform revealed that the TerraUSD peg was to be defended in May 2021. He said Chai used the company’s blockchain, but the technical details of how he did it were unclear. were not important to investors.
New York Post
