Terraform Labs and Co-Founder Do Kwon Convicted of Defrauding Investors

A US district court jury has ruled Terraform Labs and his co-founder, make kwonresponsible for defrauding investors in crypto asset securities.

The court previously found that the company and Kwon illegally offered and sold cryptoasset securities, the National Stock Market Commission (SEC), which filed the lawsuit, said on Friday (April 5) statement.

"Terraform Labs and Kwon, its former CEO, misled investors about the stability of the value of crypto assets and the so-called Terra USD algorithmic stablecoin, and further misled investors about whether a popular payment app used the chain of Terraform blocks to process and settle payments. Director of the SEC Enforcement Division Gurbir S. Grewal he said in the statement.

"Through these deceptions, the defendants caused devastating losses to investors and wiped out tens of billions of market value almost overnight," Grewal added.

Contacted by PYMNTS, a Terraform Labs spokesperson said in an email Friday: We are very disappointed with the verdict, which we do not believe is supported by evidence. We continue to maintain that the SEC does not have the legal authority to bring this case at all and are carefully weighing our options and next steps."

SEC seeks civil financial penalties and orders banning Terraform and Kwon from securities industry, Reuters reported Friday. A judge will hear from the SEC and the defendants and consider sanctions in the coming weeks.

The case revolved around Terraform's TerraUSD (UST), a stablecoin which was designed to maintain a peg to the US dollar and which collapsed in May 2022. TerraUSD had been the third largest stablecoin by market capitalization before losing its peg.

The crash led to the bankruptcy of several high-profile crypto companies, including FTX, co-founded by Sam Bankman-Fried. It also increased calls for global regulation of cryptocurrencies.

"Despite all the promises of cryptocurrencies, the lack of registration and compliance has very real consequences for real people," Grewal said in his statement on Friday. “As the hard work of our team demonstrates, we will continue to use the tools at our disposal to protect the investing public, but it is time for the crypto markets to comply.”

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