Lawyers representing the United States Securities and Exchange Commission (SEC) painted a damning picture of Terraform Labs during the opening day of its civil trial, describing it as a deceitful empire that left investors with substantial losses.
According to a report from Reuters on March 25, SEC attorney Devon Staren delivered his remarks in the U.S. District Court for the Southern District of New York, characterizing Terra as a “house of cards” that collapsed in 2022, causing significant financial harm to investors. The civil trial commenced more than a year after the SEC filed a lawsuit against the blockchain company in February 2023, accusing Terra and its co-founder, Do Kwon, of orchestrating a fraudulent scheme involving crypto assets worth billions of dollars.
Do Kwon was absent on the first day of the trial due to his arrest in Montenegro in March 2023 for using forged travel documents. He was subsequently sentenced to four months in prison. Although reports suggested that Kwon had been released on March 23 while awaiting extradition to either the U.S. or his home country of South Korea, no decision had been reached at the time of publication.
The SEC alleged that Terra and Kwon misled investors regarding the stability of TerraUSD (UST), an algorithm-based stablecoin that was no longer pegged to the U.S. dollar. The repercussions of Terra’s actions, along with those of its associated tokens, likely played a role in the significant downturn experienced by the cryptocurrency market in 2022, which led to numerous companies declaring bankruptcy.
The trial was initially slated to commence in January, but the SEC officials, together with Kwon’s legal team, successfully petitioned to delay the start date until March, in the hope that Kwon would be able to participate in his defense in person. In December 2023, Judge Jed Rakoff ruled in favor of the SEC regarding Terra’s involvement with unregistered securities, while also ruling in favor of Kwon and the platform concerning the offer and sale of security-based swaps.
Terraform’s trial is just one of many cases within the cryptocurrency space expected to be heard in court in 2024. On March 28, former FTX CEO Sam Bankman-Fried is scheduled to be sentenced following his conviction on seven felony charges. Likewise, former Binance CEO Changpeng Zhao, who pleaded guilty to one felony charge, is anticipated to receive his sentence on April 30.
The increased focus on crypto-related crimes by U.S. enforcement agencies is becoming more evident, with a growing number of cases being pursued and brought to trial.