Key Points:
The verdict in the Terraform Labs lawsuit, delivered by a jury after a two-week trial in New York, serves as a significant victory for the US Securities and Exchange Commission (SEC) in its push to exert greater oversight over the cryptocurrency industry.
The SEC, in its press release on April 5, emphasized the magnitude of the fraud, which resulted in devastating losses totaling $40 billion for investors and the abrupt destruction of market value. The regulator accused Kwon and Terraform Labs of misleading investors about the stability of TerraUSD and falsely promoting Terraform’s blockchain.
During the trial, the SEC argued that Terraform Labs deceived investors about the nature of its algorithm, falsely claiming it could sustain the value of TerraUSD. The SEC highlighted that TerraUSD’s peg to the dollar was maintained through continuous trading activity rather than any algorithmic mechanism.
The jury’s decision establishes civil liability for Kwon, but criminal charges against him remain pending in both the US and South Korea. Despite efforts by both countries to extradite him, the process has been delayed multiple times, most recently by Montenegro’s Supreme Court.
Terraform Labs, which filed for bankruptcy protection in January, expressed disappointment with the verdict, asserting that the SEC lacks the legal authority to bring the Terraform Labs lawsuit. However, the SEC sees the verdict as a significant step toward ensuring compliance within the crypto markets.
The collapse of TerraUSD and Luna not only caused immediate losses but also triggered wider havoc in the cryptocurrency market, leading to bankruptcies and liquidity crises. The SEC seeks civil financial penalties and orders barring Kwon and Terraform from the securities industry, pending consideration by U.S. District Judge Jed Rakoff.
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