SEC charges Do Kwon, Terraform with fraud in connection with Terra collapse

cnbc.com:

The Securities and Exchange Commission charged Terraform Labs and its CEO, Do Kwon, with fraud, alleging that they orchestrated a multibillion dollar «crypto asset securities fraud,» the SEC said Thursday.

Kwon and Terraform allegedly schemed from Apr. 2018 until the collapse of TerraUSD, also known as UST, and its sister coin luna in May 2022 to raise billions of dollars from investors through the offer and sale of an «inter-connected suite» of crypto asset securities, including securities-based swaps that mirrored U.S. equities, and most famously, the so-called «algorithmic stablecoin» TerraUSD. The company advertised UST as a «yield-bearing» coin, offering to pay interest of up to 20 percent, according to the complaint.

Like many stablecoins, UST was pegged at a 1-to-1 ratio with the dollar. Minting one new UST required «burning,» or destroying, one luna. This structure allowed for arbitrage opportunities that were key to maintaining the peg: Users could always swap one luna for UST and vice versa at a guaranteed price of $1, regardless of the market price of either token at the time.

But the price of luna grew unstable and forced UST to break its $1 peg, an effort which sent both terra and luna spiraling.

The complaint against Kwon and Terraform was filed in federal court for the Southern District of New York in Manhattan, and charges both with violating the registration and anti-fraud provisions of both the Securities and Exchange Acts.

The SEC alleges that Kwon marketed those assets, including those mAsset swaps and Terra, as profit-bearing securities, «repeatedly claiming» the tokens would increase in value.

«Today's action not only holds the defendants accountable for their roles in Terra's collapse, which