- Terraform Labs’ closure and $4.47 billion SEC settlement reveal the consequences of crypto fraud.
- Cases involving Kwon, Zhao, and Bankman-Fried emphasize need for increased scrutiny in crypto.
Amidst various cryptocurrency projects making headlines for their successful launches, the fallout of some failed crypto companies has also captured significant attention.
The fall of Terraform labs
Terraform Labs, led by now CEO Chris Amani, has announced its closure following a substantial $4.47 billion settlement with the SEC.
This turn of events has shifted the spotlight onto Do Kwon, the founder of Terraform Labs, the company behind one of the prominent U.S.-pegged stablecoins.
Once riding high with massive venture funding and his coins Terra and Luna valued in the billions, Kwon’s trajectory now faces scrutiny akin to other notable figures in the crypto sphere.
Providing further insights on the same, a reporter from ‘The Street’ noted,
“In April, the jury unanimously found Kwon and Terra labs guilty of securities fraud. Kwon has been hiding for years after the implosion of his two digital stablecoins – Luna and Terra.”
Shedding light on the reasons behind the fallout of Terrform labs, the reporter added,
“While stablecoins are backed by actual hard assets, Kwon’s coins turned out to be backed by a web of complex codes. When an algorithm failed in 2022, $40 billion of market value went poof.”
The fraud involved misleading investors about Terraform’s blockchain and the stability of their cryptocurrency UST.
When UST lost its peg to the U.S. dollar in May 2022, its value and that of Terraform’s other tokens crashed, wiping out about $40 billion in market value.
Gensler’s frustration on the issue
This caused significant financial losses for investors, including retail investors who trusted false information from Terraform Labs further fueling the hedge funds collapse and investors running for the exit.
Expressing concern on the same, SEC Chair Gary Gensler in a press release said,
“This case affirms what court after court has said: The economic realities of a product—not the labels, the spin, or the hype—determine whether it is a security under the securities laws.”
Similar stories
Well, Kwon isn’t the only figure embroiled in controversy. Changpeng Zhao, former CEO of Binance, the world’s largest crypto exchange, was sentenced in April to four months in jail.
Additionally, Zhao had to surrender assets totaling $4.3 billion after a conviction for money laundering.
Adding to the fray was Sam Bankman-Fried, CEO of FTX, who received a 25-year prison sentence in March for fraud and conspiracy, with a judge ordering the seizure of $11 billion in assets.
These legal actions underscore ongoing regulatory scrutiny and consequences within the crypto industry.
Sharing his thoughts on the same, Gensler best put it when he claimed,
“Their fraud serves as a reminder that, when firms fail to comply with the law, investors get hurt. Terraform and Kwon fought our efforts to investigate – taking a fight over investigative subpoenas all the way to the Supreme Court. Thankfully, with this settlement, the victims of their massive fraud will now get some justice.”