Terraform Labs and its co-founder Do Kwon have been found liable for fraud in their ongoing SEC trial, according to Bloomberg. The SEC accuses the defendants of misleading investors about the stability of its “algorithmic stablecoin,” Terra USD. The jury delivered the verdict in federal court after a two-week trial after hearing closing arguments earlier in the day.
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In May 2022, the entire Terra ecosystem crashed and burned, losing billions of dollars held by its investors. During its case, the SEC argued that Kwon and Terraform Labs deceived everyday investors about the nature of that algorithm, upon his direction, implying that it allowed UST to “naturally heal” and “automatically self-heal” in the event of a de-peg. Furthermore, the SEC accuses Terraform Labs of falsely claiming their blockchain was used in a popular Korean mobile payment app.
SEC Attorney Laura Meehan Bashes Do Kwon and Terraform Labs
SEC attorney Laura Meehan said during closing arguments that the platform’s success story was “built on lies.” Meehan said, “If you swing big and you miss, and you don’t tell people that you came up short, that is fraud.”
She added that Terraform’s fraud also lies in their “secret” working agreement with Jump, a trading shop that acted as a market maker for Terraform Labs. According to Meehan, Kwon and Terraform worked to keep this agreement quiet, and Jump worked to buy millions in UST off-chain to inflate the asset’s price.
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“Defendants lied for years. They lied about the success and size of their blockchain … they lied about the stability of their algorithm,” Meehan claims. “They’re still parading themselves around like they’re a real company like they’re legitimate.”
Do Kwon was not present on behalf of Terraform at the SEC trial. The SEC is seeking civil financial penalties and orders barring him and Terraform Labs from the securities industry.