Terra: A House of Cards in SEC Civil Trial

Lawyers representing the United States Securities and Exchange Commission (SEC) have presented Terraform Labs as a fraudulent empire during the opening day of its civil trial. They argued that investors had suffered significant losses due to the collapse of Terraform Labs. The SEC filed a lawsuit against the blockchain firm in February 2023, accusing it and its co-founder, Do Kwon, of orchestrating a multi-billion dollar crypto asset securities fraud. Kwon, who was arrested in March 2023 for using falsified travel documents, did not appear for the first day of the trial.

Terraform Labs allegedly misled investors about the stability of its algorithm stablecoin, TerraUSD (UST), which was previously pegged to the U.S. dollar. The depegging of UST, along with the impact on Terra (LUNA) and other tokens, is believed to have contributed to a significant cryptocurrency market downturn and the bankruptcy of several companies during 2022. The trial, originally scheduled for January, was postponed until March to allow Kwon to join his defense team in person.

In December 2023, a judge ruled in favor of the SEC regarding Terra’s dealing with unregistered securities. The court ruled in favor of Kwon and the platform concerning the offer and sale of security-based swaps. Terraform Labs’ trial is just one of the many cases in the crypto industry that are expected to reach the court system in 2024. Former FTX CEO Sam Bankman-Fried will be sentenced on March 28 after being convicted on seven felony charges. Former Binance CEO Changpeng Zhao, who pleaded guilty to one felony charge, is set to be sentenced on April 30.