SEC Launches an Investigation of Terraform Labs
and UST Collapse
The U.S. Securities and Exchange Commission (SEC) is reportedly
investigating Terraform Labs and the collapse of algorithmic stablecoin TerraUSD (UST). “SEC enforcement attorneys are investigating whether Terraform
Labs broke securities and investment product rules.”
UST lost its peg to the U.S. dollar in early May. The stablecoin quickly lost its value and collapsed alongside the cryptocurrency TerraLUNA. Both coins were created by Terraform Labs CEO Do Kwon, who has since launched LUNA 2.0.
Bloomberg reported on Thursday
that the SEC is investigating whether the marketing of UST that crashed,
violated federal investor protection regulations. Specifically, SEC enforcement
attorneys are investigating whether Terraform Labs broke securities and
investment product rules.
The
implosion of the two cryptocurrencies prompted lawmakers in various countries
to look into regulating stablecoins. In the U.S., Treasury Secretary Janet
Yellen said the regulation of stablecoins is urgently needed. SEC Chairman Gary
Gensler subsequently said that a lot of crypto tokens could collapse.
Kwon
is already facing scrutiny from the SEC over the Mirror Protocol. In a
ruling on Wednesday, Terraform Labs and CEO Kwon were ordered to comply with
the SEC’s subpoenas filed in February. Kwon’s appeal has been rejected by the
court.
Regarding
the investigation by the SEC, the Singapore-based Terraform Labs told that it
was not aware of an SEC investigation into UST. “We are not aware of any SEC
probes into TerraUSD at this time – we’ve received no such communication from
the SEC and are aware of no new investigation outside of that involving Mirror
Protocol,” Kwon said.
Legal
experts do not expect Kwon to face criminal charges in the U.S. They
said it’s more likely for him to face civil charges and regulatory penalties.
In South Korea, the government has launched an investigation into the collapse of Terra
and TerraUSD. A class-action lawsuit has also been filed against Terraform
Labs, Kwon, and another co-founder. Seoul police are also investigating whether
Terraform Labs staff embezzled the company’s bitcoin.
Terraform Labs used to have a subsidiary in South Korea. However, Kwon dissolved it days before the collapse of UST and LUNA.
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