The US Securities and Exchange Commission (SEC) has fined crypto firm Terraform and CEO Do Kwon more than $4.5 billion over “one of the largest securities frauds in U.S. history”.
Kwon and his firm Terraform orchestrated a years-long fraud involving crypto asset securities that led to “devastating” investor losses when the scheme unravelled.
SEC chair Gary Gensler said: “The economic realities of a product—not the labels, the spin, or the hype—determine whether it is a security under the securities laws.
“Terraform and Do Kwon’s fraudulent activities caused devastating losses for investors, in some cases wiping out entire life savings. Their fraud serves as a reminder that, when firms fail to comply with the law, investors get hurt,” Gensler added.
As part of the settlement, Terraform agreed to pay $3,586,875,883, $466,952,423 in prejudgment interest, and a $420,000,000 civil penalty. Terraform also agreed to stop selling its crypto asset securities, wind down its operations, replace two of its directors, and distribute its remaining assets to investor victims and creditors through a liquidation plan, subject to approval by the court in Terraform’s pending bankruptcy case.
Kwon agreed to pay $110,000,000 and $14,320,196 in prejudgment interest on a joint and several basis with Terraform, as well as an $80,000,000 civil penalty.`
A nine-day jury trial in April uncovered the extent of the defendants’ lies to victims about the false use of the Terraform blockchain to settle transactions and about the stability of their crypto asset security, UST.
The SEC also offered evidence at trial showing that, in May 2022, after UST de-pegged from the US dollar, the price of UST and Terraform’s other tokens plummeted to close to zero. This wiped out $40 billion in market value nearly overnight and caused substantial losses to countless investors, including numerous retail investors.
Gurbir Grewal, director of the SEC’s division of enforcement, said: “Do Kwon and Terra orchestrated one of the largest securities frauds in US history by, among other things, falsely claiming that they had achieved the Holy Grail of crypto: a non-illicit use case. As the jury found, that was a lie, as was their claim of creating an ‘algorithmic stablecoin.’ In the end, all they succeeded in doing was lying to investors, wiping out tens of billions of dollars in market value, and creating a trail of victims.”
©Markets Media Europe 2024
