A recent verdict by a jury has found Terraform Labs and its co-founder, Do Kwon, culpable in a significant case of investor fraud, as announced by the U.S. Securities and Exchange Commission (SEC) on April 5.
The decision, stemming from deliberations in the U.S. District Court for the Southern District of New York, concluded the civil enforcement trial which began on March 25.
Notably, Do Kwon was absent from the proceedings, currently in Montenegro amidst ongoing deliberations over his potential extradition to either the U.S. or South Korea.
SEC Enforcement Director Gurbir Grewal expressed satisfaction with the outcome, stating, “We are pleased with today’s jury verdict holding Terraform Labs and Do Kwon liable for a massive crypto fraud.”
He highlighted the misleading nature of Terraform and Kwon’s actions, particularly regarding the stability of Terra USD, an algorithmic stablecoin, and misrepresentations about the use of Terraform’s blockchain by a payment application.
Grewal pointed out the serious implications of Terraform’s failure to register with the SEC, advocating for regulatory compliance.
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In contrast, a spokesperson for Terraform Labs voiced their disagreement with the jury’s decision, arguing that the SEC lacked the authority to initiate the case and indicating that further actions were being considered.
The jury found Kwon and Terraform responsible for six charges, including recklessly making false or misleading statements related to TerraUSD (UST), LUNA, and wLUNA sales or offers.
This verdict arrives after Terraform Labs’ dramatic collapse in May 2022, which was precipitated by the instability of its UST stablecoin, contributing to a broader downturn in the cryptocurrency market.
The SEC had launched its lawsuit against Terraform and Kwon in February 2023, accusing them of orchestrating a multi-billion dollar fraud involving crypto asset securities.
A partial summary judgment in December had previously seen Judge Jed Rakoff rule partially in favor of Terraform concerning charges of unregistered security-based swaps offerings.
The implications of the verdict on Kwon’s extradition remain uncertain. Following a Supreme Court decision in Montenegro, his extradition case has been referred back to a lower court to decide on whether he should be extradited to the U.S. or South Korea, where he faces criminal charges.
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