Due to negative developments since the TerraUSD collapse, the U.S. Securities and Exchange Commission yesterday filed a lawsuit against Terraform, the company that developed the stablecoin, and its co-founder, Do Kwon.
SEC Sues Terraform Labs and Do Kwon
The government office said Terraform and Kwon misled investors on several issues, including who used TerraUSD for payments. According to the complaints, Terraform and Kwon referred to the yield-generating Anchor Protocol and the LUNA token as crypto asset securities. In sum, both names are charged with fraud, the sale of unregistered securities, the sale of unregistered securities-based swaps, and other related allegations.
One of the most crucial components of Terraform’s offering, the stability of UST, the algorithmic “stablecoin,” reportedly pegged to the US dollar, was also allegedly misrepresented by Terraform and Kwon to investors. The government office would sue over the allegations reported by Bloomberg earlier on Thursday morning.
About Complaint
The complaint claimed that Kwon and Terraform collaborated with an unnamed U.S. trading company to reinstate UST’s peg after it dropped by about 10 cents in May 2021. The trading company acquired LUNA tokens from Terraform after purchasing amounts of the UST tokens.
Soon after UST’s recovery in May 2021, Terraform and Kwon started to give materially false information about how the currency’s peg to the dollar was reinstated. The complaint stated that Terraform and Kwon, in particular, stressed the alleged effectiveness of the algorithm underlying UST in retaining UST pegged to the dollar – misleadingly ignoring the genuine cause of UST’s re-peg.
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