By Jody Godoy
NEW YORK (Reuters) -A jury in Manhattan discovered Singapore-based Terraform Labs and its founder Do Kwon liable on civil fraud prices on Friday, agreeing with the U.S. Securities and Alternate Fee that they misled traders earlier than their stablecoin’s 2022 collapse shocked cryptocurrency markets.
The jury delivered the decision in federal courtroom after a two-week trial after listening to closing arguments earlier within the day.
The SEC accused the corporate and Kwon of deceptive traders in 2021 in regards to the stability of TerraUSD, a stablecoin designed to take care of a worth of $1. The regulator additionally accused them of falsely claiming Terraform’s blockchain was utilized in a well-liked Korean cell fee app.
SEC lawyer Laura Meehan stated throughout closing arguments that the platform’s success story was “constructed on lies.”
“In the event you swing large and also you miss, and you do not inform individuals that you simply got here up quick, that’s fraud,” Meehan stated.
Louis Pellegrino, an lawyer for Terraform, instructed the jury on Friday the SEC’s case relied on statements taken out of context and that Terraform and Kwon had been truthful about their merchandise and the way they labored, even after they failed.
“Terraform remains to be on the market, attempting to rebuild and make purchasers complete,” he stated.
The regulator is looking for civil monetary penalties and orders barring Kwon and Terraform from the securities business.
Kwon, who was arrested in Montenegro in March 2023, didn’t attend the trial, which started March 25. Each the U.S. and South Korea, the place Kwon is a citizen, have sought his extradition on legal prices.
Kwon designed TerraUSD and Luna, a extra conventional token that fluctuated in worth however was intently linked to TerraUSD.
The SEC estimates traders misplaced greater than $40 billion on the 2 tokens mixed when the TerraUSD peg to the greenback couldn’t be maintained in Could 2022.
Their collapse additionally dragged down the worth of different cryptocurrencies, together with bitcoin, and induced wider havoc within the crypto market, main a number of corporations to file for chapter in 2022.
Terraform itself filed for chapter safety in January.
The SEC has stated Kwon and Terraform secretly organized to have a 3rd get together buy massive quantities of TerraUSD to prop up the worth when the stablecoin slipped from its peg a yr earlier, in Could 2021. Kwon falsely attributed the restoration to the reliability of TerraUSD’s algorithms, in accordance with the regulator.
The SEC additionally has stated Kwon and Terraform falsely touted Terraform’s blockchain as getting used to course of and settle transactions between prospects and retailers on the Chai fee app.
Pellegrino stated on Friday that Terraform had disclosed TerraUSD’s peg wanted to be defended in Could 2021. He stated Chai had used the corporate’s blockchain, however the technical particulars of the way it did so weren’t essential to traders.
