A jury found Terraform Labs and co-founder Do Kwon liable for defrauding investors in its civil case with the United States Securities and Exchange Commission.
In an April 5 announcement, SEC Enforcement Director Gurbir Grewal said jurors in U.S. District Court for the Southern District of New York found Kwon and Terraform liable in the civil enforcement case after a short deliberation. The SEC trial started on March 25 without the attendance of Kwon, who remains in Montenegro as courts determine whether to grant an extradition request from the U.S. or South Korea.
“We are pleased with today’s jury verdict holding Terraform Labs and Do Kwon liable for a massive crypto fraud,” said Grewal. “Terraform Labs and Kwon, its former CEO, deceived investors about the stability of the crypto asset security and so-called algorithmic stablecoin Terra USD, and they further misled investors about whether a popular payment application used Terraform’s blockchain to process and settle payments.”
Grewal cited Terraform’s lack of registration with the regulator as having “very real consequences” for investors, reiterating calls for compliance. During the trial, SEC attorneys likened the platform to a “house of cards” and alleged the company and Kwon lied to investors.
“We are very disappointed with the verdict, which we do not believe is supported by the evidence,” a Terraform Labs spokesperson told Cointelegraph. “We continue to maintain that the SEC does not have the legal authority to bring this case at all, and we are carefully weighing our options and next steps.”
According to the verdict filed in the U.S. District Court for the Southern District of New York on April 5, jurors found Kwon and Terraform liable for six charges. They also determined that the platform acted “recklessly” in making false or misleading statements regarding the offer or sale of TerraUSD (UST), Luna (LUNA) or wLUNA.
Terraform Labs collapsed in May 2022 following the instability of its algorithmic stablecoin, UST, and other claims about the blockchain’s use cases. The platform’s failure likely contributed to a major crypto market downturn, leading to bankruptcy filings from firms including FTX, BlockFi and Celsius.
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The SEC filed its lawsuit against Terra and Kwon in February 2023, alleging the two “orchestrat[ed] a multi-billion dollar crypto asset securities fraud.” The civil case could have far-reaching implications for crypto firms operating in the U.S. — in December, Judge Jed Rakoff granted a partial summary judgment in favor of Terraform regarding the unregistered offer and sale of security-based swaps.
It’s unclear what the verdict could mean for the extradition of Kwon from Montenegro. As of April 5, following a decision from the country’s Supreme Court, his case has been returned to a lower court to determine whether to grant extradition to the U.S. or South Korea. He faces criminal charges in both countries.
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