Terraform Labs, along with its co-founder Do Kwon, has been found guilty of defrauding investors in a civil case brought against them by the United States Securities and Exchange Commission (SEC). The verdict was reached by a jury in the U.S. District Court for the Southern District of New York after a brief deliberation. Kwon did not attend the trial as he is currently in Montenegro, awaiting a decision on whether the U.S. or South Korea will grant his extradition request.
Gurbir Grewal, the SEC Enforcement Director, expressed satisfaction with the jury’s verdict, stating that it holds Terraform Labs and Kwon accountable for a significant cryptocurrency fraud. Grewal accused the company and its former CEO of deceiving investors about the stability of the crypto asset security and the algorithmic stablecoin Terra USD. He also claimed that they misled investors about the use of Terraform’s blockchain in a popular payment application for processing and settling payments.
Grewal emphasized the consequences of Terraform’s failure to register with the regulator, calling for compliance. Throughout the trial, SEC attorneys likened the platform to a precarious structure and accused the company and Kwon of lying to investors.
Cointelegraph reached out to a spokesperson from Terraform Labs for comment, who expressed disappointment with the verdict. The spokesperson maintained that the SEC lacks the legal authority to bring this case and stated that the company is considering its options and next steps.
According to the verdict filed in the U.S. District Court for the Southern District of New York, Kwon and Terraform were found liable for six charges. The jury also determined that the platform acted recklessly by making false or misleading statements about the offer or sale of TerraUSD (UST), Luna (LUNA), and wLUNA.
Terraform Labs suffered a collapse in May 2022 due to the instability of its algorithmic stablecoin, UST, and other claims about the blockchain’s applications. This failure had significant repercussions on the crypto market, leading to bankruptcy filings from prominent firms such as FTX, BlockFi, and Celsius.
The SEC filed its lawsuit against Terraform and Kwon in February 2023, alleging that they orchestrated a multi-billion dollar crypto assets securities fraud. The outcome of this civil case could have widespread implications for crypto firms operating in the U.S. In December, Judge Jed Rakoff ruled in favor of Terraform in a partial summary judgment regarding the unregistered offer and sale of security-based swaps.
The verdict’s impact on Kwon’s extradition remains uncertain. As of April 5, following a decision by Montenegro’s Supreme Court, his case has been sent back to a lower court to determine whether extradition to the U.S. or South Korea should be granted. Kwon faces criminal charges in both countries.
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