SEC sues stablecoin operator and chief Do Kwon

The US Securities and Exchange Commission has sued the collapsed stablecoin operator Terraform Labs and its chief executive, Do Kwon, for allegedly arranging a multibillion-dollar cryptocurrency fraud.

The SEC complaint filed on Thursday said that between April 2018 and May 2022, Singapore-based Terraform and Kwon raised billions of dollars from investors by selling a string of interlinked digital securities, many of which were not properly registered with regulators.

These assets included TerraUSD, a stablecoin developed by Kwon whose sudden multibillion-dollar collapse last year sent shockwaves throughout the crypto world, as well as the associated luna token, the SEC said.

The regulator also claimed that the stablecoin operator and Kwon used misleading statements to market their digital assets, such as telling investors that a well-known Korean mobile payment app used the Terra blockchain to settle transactions that would add value to the luna token.

“This case demonstrates the lengths to which some crypto firms will go to avoid complying with the securities laws, but it also demonstrates the strength and commitment of the SEC’s dedicated public servants,” said Gary Gensler, SEC chair, in a statement, adding that the defendants in the case “attempted to prevent us from obtaining important information about their business”.

The regulator alleged Terraform and Kwon violated registration and anti-fraud provisions in US securities laws. Lawyers for Terraform and Kwon did not immediately respond to requests for comment.

The agency’s move is the latest blow to Terraform and its South Korean chief executive, which have faced a string of legal challenges after the breakdown of TerraUSD and luna caused significant losses for investors.

“Today’s action not only holds the defendants accountable for their roles in Terra’s collapse, which devastated both retail and institutional investors and sent shockwaves through the crypto markets, but once again highlights that we look to the economic realities of an offering, not the labels put on it,” Gurbir Grewal, director of the SEC’s enforcement division, said in a statement.

It is the latest in a string of SEC enforcement actions against cryptocurrency platforms as US regulators broaden a crackdown on digital assets that has sparked fears from those in the sector that crypto could be pushed out of one of its biggest markets.

Additional reporting by Scott Chipolina