Following a high-profile trial in New York, Terraform Labs Pte. and its co-founder, Do Kwon, faced legal repercussions for their alleged involvement in a US government lawsuit concerning the company’s collapse in 2022. This event, which led to the loss of $40 billion in investor assets and rocked the cryptocurrency sphere, marked a significant milestone in the industry’s regulatory landscape. The jury’s verdict, delivered after a two-week trial, accused Kwon and Terraform of deceiving investors, bolstering the US Securities and Exchange Commission’s efforts to tighten regulatory oversight over the cryptocurrency sector. Moreover, the outcome of the trial may foreshadow potential criminal proceedings against Kwon in both the US and South Korea, although meeting the higher criminal standard for guilt poses a significant challenge in such cases.
Jurors agreed with the SEC that Kwon and, under his direction, Terraform Labs deceived everyday investors about the nature of the supposed algorithm that kept UST pegged to the U.S. dollar. Though Kwon insinuated that it could “automatically self-heal” in the event of a de-peg, it actually relied on continuous trading activity, including large-scale trading done by institutional investors.
“We are pleased with today’s jury verdict holding Terraform Labs and Do Kwon liable for a massive crypto fraud,” Gurbir Grewal, SEC Division of Enforcement director, wrote in a statement.
“The defendants caused devastating losses for investors and wiped out tens of billions of market value nearly overnight. For all of crypto’s promises, the lack of registration and compliance have very real consequences for real people. As the hard work of our team shows, we will continue to use the tools at our disposal to protect the investing public, but it is high time for the crypto markets to come into compliance,” Grewal added.
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