The SEC has filed a lawsuit against Terraform Labs and its founder, Do Kwon, for allegedly "orchestrating a multi-billion dollar crypto asset securities fraud."
According to SEC chair Gary Gensler, Kwon and Terraform "failed to provide the public with full, fair, and truthful disclosure," particularly for USTC and LUNC, which were previously known as Terra (LUNA) and TerraUSD (UST).
The SEC alleges that Kwon and Terraform offered and sold an "interconnected suite of crypto asset securities, many in unregistered transactions," in a statement.
Terraform Labs' now-defunct algorithmic stablecoin, TerraClassicUSD (USTC), and its associated cryptocurrency, Terra Luna Classic (LUNC), were mentioned by the agency.
Last May, USTC lost its peg to the U.S. dollar, effectively bringing its price - and the price of LUNC - to zero. This caused a wider collapse in the digital asset market, wiping out an estimated $40 billion.
The SEC also criticized mAssets, which are crypto derivatives that mimic the stock price of publicly traded firms, as well as Terraform's issuance of Mirror (MIR), a governance token for the Mirror protocol that lists mAssets.
"We also allege that they committed fraud by repeating false and misleading statements to build trust before causing devastating losses for investors," Gensler said.
The SEC filed a 55-page complaint in the U.S. District Court for the Southern District of New York alleging violations of the Securities Act and Exchange Act's registration and anti-fraud provisions.
According to the SEC complaint, Terraform and Kwon "touted and marketed" its Anchor Protocol, which was supposed to pay out 20% interest on U.S.TC deposits at one time. It also claimed Terraform and Kwon deceived investors regarding Terra's stablecoin's stability.
"The defendants attempted to prevent us from obtaining important information about their business," Gensler said of the SEC's investigation.
"This case demonstrates the lengths to which some crypto firms will go to avoid complying with the securities laws," he added.
Kwon, a South Korean national, is now at large and believed to be in Serbia after fleeing Singapore in September after a Seoul court issued an arrest warrant for him. Later in September, Interpol reportedly issued a Red Notice to law enforcement around the world for Kwon.
Kwon has denied hiding from authorities, and Terraform has said that the prosecution against Kwon in South Korea is "highly politicized."
