Manhattan Jury Finds Terraform Labs Liable for Fraud in Cryptocurrency Case
Jury Verdict on Fraud Charges
A jury in Manhattan reached a verdict on civil fraud charges against Singapore-based Terraform Labs and its founder Do Kwon. The U.S. Securities and Exchange Commission (SEC) accused them of misleading investors before the collapse of their stablecoin in 2022, causing shockwaves in the cryptocurrency markets.
SEC Allegations and Impact
The SEC claimed that Terraform Labs and Kwon misled investors about the stability of TerraUSD in 2021, a stablecoin meant to hold a value of $1. They also falsely advertised Terraform’s blockchain as being utilized in a popular Korean mobile payment app. The collapse of TerraUSD and Luna in May 2022 resulted in over $40 billion in investor losses and significant turmoil in the crypto market.
Legal Ramifications and Response
The SEC is seeking civil penalties and industry bans against Kwon and Terraform. The company expressed disappointment with the verdict and is exploring its options. However, the SEC welcomed the decision, emphasizing the need for compliance in the crypto markets. Kwon’s extradition is being sought by both the United States and South Korea on criminal charges.
Challenges and Rebuilding Efforts
Terraform’s bankruptcy filing in January marked a significant setback. Kwon, currently detained in Montenegro, did not attend the trial. The defense argued that the SEC’s case was based on misconstrued statements, while emphasizing Terraform’s commitment to rectify the situation and compensate buyers.
Legal Rulings and Potential Appeals
Rakoff rejected Terraform’s argument against securities laws, ruling that they unlawfully sold digital assets without proper registration. After final judgments, Terraform may challenge this decision on appeal, indicating potential legal battles ahead.
