Lawyers representing the United States Securities and Exchange Commission (SEC) opened the civil trial against Terraform Labs by portraying the company as a fraudulent empire that caused investors to suffer significant losses.
During the trial, SEC attorney Devon Staren argued in the U.S. District Court for the Southern District of New York that Terraform Labs, also known as Terra, was a “house of cards” that collapsed in 2022, leaving investors empty-handed. The trial began more than a year after the SEC filed a lawsuit against the blockchain firm in February 2023, accusing Terra and its co-founder Do Kwon of orchestrating a multi-billion dollar crypto asset securities fraud.
Kwon was not present on the first day of the trial because he had been arrested in Montenegro in March 2023 for using forged travel documents. He was sentenced to four months in prison. Although he was reportedly released on March 23 while awaiting extradition to the U.S. or South Korea, no decision had been made at the time of this article’s publication.
According to the SEC, Terra and Kwon misled investors about the stability of TerraUSD (UST), an algorithm stablecoin that detached itself from the value of the U.S. dollar. The impact of this deception on Terra (LUNA) and other tokens likely contributed to a major downturn in the crypto market in 2022, resulting in several companies declaring bankruptcy.
The trial was initially set to commence in January but was postponed to March at the request of the SEC and Kwon’s legal team. They hoped that Kwon would be able to join the defense proceedings in person. In December 2023, Judge Jed Rakoff ruled in favor of the SEC, granting summary judgment against Terra for dealing with unregistered securities. However, the judgment was in favor of Kwon and the platform for the offer and sale of security-based swaps.
Terraform’s trial is just one of many cases in the crypto industry that are expected to be heard in court in 2024. On March 28, former FTX CEO Sam Bankman-Fried will be sentenced after being convicted on seven felony charges. Former Binance CEO Changpeng Zhao, who pleaded guilty to one felony charge, is expected to be sentenced on April 30.
The enforcement agencies in the U.S. are intensifying their efforts to combat crypto-related crimes, indicating a growing focus on regulating the crypto industry.