SEC files charges against Terraform Labs, Do Kwon

The U.S. Securities and Exchange Commission (SEC) filed a complaint on Feb. 16 against Terraform Labs PTE Ltd. and its founder Do Kwon.

The SEC alleged that the defendants offered and sold crypto asset securities in unregistered transactions and perpetrated a fraudulent scheme.

The regulator said:

“Defendants’ crypto asset securities offerings involved an array of interrelated tokens that were created, developed, promoted, offered, and sold by Defendants as profit-seeking investments.”

The defendants violated the securities offering registration provisions of the federal securities law, according to the SEC filing.

The SEC said that, prior to the collapse of various Terraform projects in May 2022, Kwon and the company raised billions of dollars by selling securities.

Terraform Labs is best known for its massively devalued Terra USD stablecoin (USTC), which is currently worth just $0.03 instead of its targeted $1.00 price peg. The project also sold other assets including the altcoin now known as Terra Classic (LUNC, formerly LUNA), plus MIR or mirror tokens and “mAsset” swaps tied to the value of stocks.

The SEC’s complaint specifically accuses Kwon and Terraform Labs of marketing crypto securities to profit-seeking investors and advertising that the assets would gain value. The collapse of various assets means that the team failed to deliver on that promise.

Today’s announcement merely reveals the charges against the project. Terraform Labs and Kwon have not said whether they intend to settle with the SEC, and the SEC has not disclosed the amount of penalties involved in any potential settlement.

Terraform Labs, to the extent that it is operational, could conceivably fight against the charges in court as Ripple and others have done. Terraform Labs in fact previously attempted to sue the SEC in 2021 over the manner in which it served a subpoena to Kwon in public. However, it is unlikely that the project will attempt a more ambitious fight against the regulator now that it has collapsed and has little that is worth defending.

Despite its failure, Terra’s various original tokens plus a revived version of LUNA still trade on the market. Each asset has just a fraction of the value it had prior to May 2022.