SEC charges Kwon with offering unregistered securities

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.

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

Among other things, the agency is seeking civil monetary penalties, payment of disgorgement with interest, and that Kwon and Terraform Labs be prohibited from buying, selling or offering “crypto asset securities” again.

“We allege that Terraform and Do Kwon failed to provide the public with the full, fair and truthful disclosure required for a number of crypto-asset securities, particularly for LUNA and Terra USD,” SEC Chairman Gary Gensler said. “We also allege that they committed fraud by repeating false and misleading statements to build confidence before causing devastating losses to investors.”

Stablecoins are cryptocurrencies designed to stay at par with a government-issued currency, such as the US dollar. Terra’s stablecoin was undercollateralized, meaning it was not backed 1:1 with reserves. Rather, the protocol would burn Terra’s native token, LUNA, to mint an equivalent amount of UST – or, conversely, mint LUNA tokens to redeem UST. Finally, the flywheel mechanism sent LUNA and UST into a death spiraldirectly wiped out over $40 billion in value from the crypto market.

Kwon is now 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.