Terraform Labs and Do Kwon charged with fraud in the United States

After a two-week trial in New York, Terraform Labs and its co-founder Do Kwon were found guilty of fraud for intentionally lying to investors about UST, an algorithmic stablecoin in the Terra ecosystem backed by the token LUNA.

How Terraform Labs caused a long bear market for cryptocurrencies!

In May 2022, South Korean company Terraform Labs supported its reserve fund with Bitcoin. He also purchased around $100 million worth of AVAX coins. All this by selling its UST stable tokens without worrying about price adjustments and the impact of mass sales on the price of UST.

Then on the morning of May 8, 2022, after the Terra stablecoins dumps, the price of UST fell and lost its correlation with the US dollar. The collapse of UST coincided with LUNA, the native token of its parent company, losing more than 96% of its value in one day.

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Terraform Labs then attempted to regain control and stabilize its UST and LUNA coins by selling its reserve assets, which were partly made up of Bitcoin. But it's too late.

In less than a week, the loss was made 40 billion dollars ...It was a real farce, because it caused the start of a harsh winter for the cryptocurrency market. The repercussions of Terra's collapse have also been seen in many blockchain projects.

US indicts Terraform Labs and Do Kwon for deceiving investors and fraud

After a two-week trial in a New York court, the United States convicted Terraform Labs and its co-founder Do Kwon of fraud for intentionally lying to investors about UST. Do Kwon was absent from the trial as he remains in custody in Montenegro awaiting extradition.

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Hikmet A New York federal court found Terraform Labs and its co-founder guilty of fraud and intentionally misleading investors about UST. They were also accused of lying about the use of their technology by the South Korean company Chai.

The jury ruled, with supporting evidence, that Terraform Labs lied when it claimed that Chai, a South Korean application, used its blockchain in its transactions. Chai's former product manager attended the trial and confirmed that Terraform Lab made numerous misleading statements regarding Chai's use of technology provided by the Terra blockchain.

Also during the trial, evidence established that Jump Trading, a company specializing in high-frequency trading, had indeed injected money to support the US currency peg during its collapse. Although Terraform Labs has always maintained that the UST structure provides it with complete autonomy. It therefore does not need external intervention to maintain its position in relation to the dollar.

The SEC had notably indicated that the Terra affair was solely the result of non-compliance with the rules. It will continue to use “available tools” to protect investors.

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Terraform Labs, which also filed for bankruptcy in January 2024, argued that the SEC overstepped its rights in the suit. And that the latter does not have at all the legal authority to take legal action against Terraform Labs.