Jury Finds Terraform Labs and Do Kwon Liable in Fraud Case

Jury Finds Terraform Labs and Do Kwon Liable in SEC Fraud Case

Apr 08, 2024

Key Takeaways

Terraform Labs and its co-founder, Do Kwon, have been found liable for investor fraud by a US jury, in a case brought by the SEC;
The SEC's Enforcement Director highlighted the severe impact of Terraform's actions on investors and the market;
Do Kwon's case includes a pending extradition decision in Montenegro.

Terraform Labs and its co-founder, Do Kwon, have been declared liable for defrauding investors, according to the United States Securities and Exchange Commission (SEC).

The decision was made on April 5, marking the end of a nine-day trial in the US District Court for the Southern District of New York.

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The lawsuit, initiated by the SEC in February 2023, addressed allegations related to the collapse of Terraform Labs in May 2022—a collapse that caused financial distress and led to the bankruptcy of numerous firms.

The jurors concluded that Terraform and Kwon were liable on five counts, accusing them of recklessness and disseminating false or misleading information related to their digital currencies, Terra USD (UST), Luna (LUNA), and wrapped Luna (wLUNA).

The SEC's Enforcement Director, Gurbir Grewal, expressed satisfaction with the jury's decision and stated:

Terraform Labs and Kwon, its former CEO, deceived investors about the stability of the crypto asset security and so-called algorithmic stablecoin Terra USD, and they further misled investors about whether a popular payment application used Terraform’s blockchain to process and settle payments.

Grewal also highlighted the huge investor losses and the rapid wipeout of billions in market value as a result of these deceptions, emphasizing the severe consequences of not following registration and compliance rules.

In response, a spokesperson from Terraform Labs criticized this outcome, stating that the verdict lacked evidence and that the SEC overstepped its jurisdiction in filing the lawsuit at all.

Notably, Do Kwon was absent from the proceedings, as he is currently in Montenegro pending decisions on extradition requests from the US and South Korea.

Montenegro's Supreme Court has recently annulled a previous ruling on Do Kwon's extradition to South Korea, sending the decision back to the High Court of Podgorica for further review.

This case illustrates the legal scrutiny of crypto operations, setting a precedent for regulatory compliance and the consequences of misleading investors within the industry.