SEC Charges Do Kwon With Offering Unregistered Securities

Tom Carreras

Feb. 17, 2023

The regulator claims Kwon fraudulently misled investors on the question of UST’s stability.

SEC Charges Do Kwon With Offering Unregistered Securities

Shutterstock cover by corgarashu (edited by Mariia Kozyr)

Key Takeaways

The SEC filed a lawsuit against Terraform Labs and Do Kwon.
It claims that Kwon sold unregistered securities and violated anti-fraud provisions of federal securities laws.
The agency wants civil money penalties, disgorgement, and to ban Kwon from buying or selling crypto assets.

Nine months after Terra’s spectacular meltdown, the SEC has finally decided to charge Do Kwon.

Banned From Crypto

Do Kwon is back in the headlines.

The Securities and Exchange Commission filed a civil lawsuit against Terraform Labs and its infamous CEO Do Kwon over Terra and its native algorithmic stablecoin, UST. The SEC accused the defendants of offering and selling various unregistered securities to investors and violating anti-fraud provisions of federal securities laws.

Among other things, the agency seeks civil money penalties, payment of disgorgement with interest, and for Kwon and Terraform Labs to be banned from buying, selling, or offering “crypto asset securities” ever again.

“We allege that Terraform and Do Kwon failed to provide the public with full, fair, and truthful disclosure as required for a host of crypto asset securities, most notably for LUNA and Terra USD,” stated SEC Chair Gary Gensler. “We also allege that they committed fraud by repeating false and misleading statements to build trust before causing devastating losses for investors.”

Stablecoins are cryptocurrencies designed to stay at parity with a government-issued currency, such as the U.S. dollar. Terra’s stablecoin was undercollateralized, meaning that it wasn’t backed 1:1 with reserves. Rather, the protocol would burn Terra’s native token, LUNA, to mint an equivalent amount of UST—or, on the contrary, mint LUNA tokens to redeem UST. The flywheel mechanism eventually sent LUNA and UST into a death spiral, directly wiping out over $40 billion in value from the crypto market.

Kwon is currently wanted in 195 countries, after Interpol issued a red notice for him. South Korean authorities claimed in December that he was hiding in Serbia.

Disclaimer: At the time of writing, the author of this piece owned BTC, ETH, and several other crypto assets.

Disclaimer