Terraform Labs PTE Ltd and Do Hyeong Kwon

U.S. SECURITIES AND EXCHANGE COMMISSION

Litigation Release No. 25692 / April 13, 2023

Securities and Exchange Commission v. Terraform Labs PTE Ltd. and Do Hyeong Kwon, No. 1:23-cv-01346 (S.D.N.Y. filed Feb. 16, 2023)

SEC Charges Terraform and CEO Do Kwon with Defrauding Investors in Crypto Schemes

The Securities and Exchange Commission charged Singapore-based Terraform Labs PTE Ltd and Do Hyeong Kwon with orchestrating a multi-billion dollar crypto asset securities fraud involving an algorithmic stablecoin and other crypto asset securities.

According to the SEC's complaint, from April 2018 until the scheme's collapse in May 2022, Terraform and Kwon raised billions of dollars from investors by offering and selling an inter-connected suite of crypto asset securities, many in unregistered transactions. These included "mAssets," security-based swaps designed to pay returns by mirroring the price of stocks of US companies, and Terra USD (UST), a crypto asset security referred to as an "algorithmic stablecoin" that supposedly maintained its peg to the U.S. dollar by being interchangeable for another of the defendants' crypto asset securities, LUNA. The complaint further alleges that Terraform and Kwon offered and sold investors other means to invest in their crypto empire, including the crypto asset security tokens MIR-or "mirror" tokens-and LUNA itself.

The SEC's complaint alleges that Terraform and Kwon marketed crypto asset securities to investors seeking to earn a profit, repeatedly claiming that the tokens would increase in value. For example, they touted and marketed UST as a "yield-bearing" stablecoin, which they advertised as paying as much as 20 percent interest through the Anchor Protocol. The SEC's complaint also alleges that, while marketing the LUNA token, Terraform and Kwon repeatedly misled and deceived investors that a popular Korean mobile payment application used the Terra blockchain to settle transactions that would accrue value to LUNA. Meanwhile, Terraform and Kwon also allegedly misled investors about the stability of UST. In May 2022, UST depegged from the U.S. dollar, and the price of it and its sister tokens plummeted to close to zero.

The complaint, filed in the U.S. District Court for the Southern District of New York, charges the defendants with violating Sections 5(a), 5(c), and 5(e) of the Securities Act of 1933 (Securities Act), Section 17(a) of the Securities Act, and Sections 10(b), 6(l), and 20(a) of the Securities Exchange Act of 1934 (Exchange Act), and Rule 10b-5 thereunder.

The investigation was conducted by Roger Landsman, Elisabeth Goot, Kathleen Hitchins, James Murtha, Daniel Koster, Donald Battle, and David Crosbie and was supervised by Reid Muoio, Osman Nawaz, Jorge Tenreiro, and David Hirsch from the Complex Financial Instruments and Crypto Assets and Cyber Units. The litigation is being handled by James Connor, Ladan Stewart, Devon Staren, and Laura Meehan from the Trial Unit.