United States of America: Announced complaint against Terraform Labs and CEO Do Hyeong Kwon for alleged violation of Securities Act

On 16 February 2023, the US Securities and Exchange Commission (SEC) filed a complaint against Terraform Labs and CEO Do Hyeong Kwon with the US District Court for the Southern District of New York for allegedly violating Section 5 and Section 17 of the 1933 Securities Act and Section 6 of the 1934 Securities Exchange Act by fraudulently selling security assets to investors without registering the offers and sales with the SEC. The SEC’s investigation found that Terraform and Kwon committed fraud by raising billions from investors through offering inter-related crypto asset tokens from April 2018 to May 2022. These included cryptocurrency assets such as Terra USD (UST), LUNA, and “mAssets”, which were security-based swaps that paid returns by mirroring US companies’ stock prices. The SEC found that Terraform and Kwon marketed false claims that the tokens would increase in value, artificially propped up the value of the UST, and also deceptively claimed that a popular Korean electronic mobile payment app “Chai” used the Terraform blockchain process to process transactions. The SEC seeks injunctions and monetary penalties against the defendants.