Do Kwon, Terraform Labs found liable for fraud in SEC case

A jury found Terraform Labs and its former CEO, Do Kwon, liable for fraud on Friday.

The decision came a few hours after both the defense and the lawyers representing the Securities and Exchange Commission gave their closing arguments.

SEC lawyer Laura Meehan argued that Terraform’s success story was “built on lies,” Reuters reported.

The decision found that Terraform and Kwon misled investors about the stability of Terra USD, an algorithmic stablecoin that crashed back in 2022. 

“We are pleased with today’s jury verdict holding Terraform Labs and Do Kwon liable for a massive crypto fraud. 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,” SEC’s Gurbir Grewal said in a statement following the decision.

Read more: It’s been 1 year since Terra wrecked crypto for everyone

“We are very disappointed with the verdict, which we do not believe is supported by the evidence. 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,” a spokesperson for Terraform Labs told Blockworks via email.

The collapse wiped billions from the crypto ecosystem and subsequently triggered a domino effect as Three Arrows Capital, a prominent crypto hedge fund at the time, and lenders like Voyager and Celsius filed bankruptcy in the weeks after the collapse. 

The SEC sued Terraform and Kwon last year, alleging that the company and its CEO conspired to defraud investors. The decision comes nearly a year later, and wraps up a trial that began in mid-March.

Prior to the trial, the SEC notched a few court wins against the company and Kwon. Judge Jed Rakoff ruled that Terraform and Kwon offered and sold unregistered securities in a summary judgment at the end of last year. 

Rakoff ruled that UST, LUNA, wLUNA and MIR fall under the Howey definition of a security because “they are investment contracts.”

Kwon, however, was not present for the trial as the former executive remains detained in Montenegro pending an extradition decision. He’s faced multiple court rulings, with the most recent one ordering an extradition to South Korea. However, a press release from the Supreme Court in Montenegro Friday announced that the decision had been scrapped. 

It remains unclear whether Kwon will be extradited to the US or South Korea.

Updated April 5, 2024 at 4:55 pm ET: Added statement from Terraform Labs.

Updated April 5, 2024 at 4:13 pm ET: Added statement from SEC; modified headline.

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