US District Judge Jed Saul Rakoff said on Thursday, Terraform Labs CEO and founder Do Kwon violated the US securities law by failing to register UST and LUNA as securities.
Rakoff, a judge at the US District Court Southern District of New York, agreed with the the Securities and Exchange Commission (SEC) that Terraform Labs offered and sold unregistered securities, in violation of Sections 5(a) and 5(c) of the US Securities law. The judge further ruled that the SEC’s fraud case against Terraform will be tried by a jury next month.
Section 5 states that securities must be registered with the SEC before any person may sell or offer to sell such securities.
According to the SEC, “Kwon was the primary architect of the scheme to mislead investors into believing that Chai was processing and settling transactions on the Terra Blockchain, when it was not.” The SEC goes on to state that, “defendants made and disseminated countless misrepresentations to investors, potential investors, and the public that Chai was processing and settling transactions on the Terra blockchain.”
The SEC also states, “Kwon, on behalf of Terraform, engaged in deceptive conduct when he secretly made a deal with Jump to step in and restore the $1 peg for UST in exchange for modifying the terms of an agreement for Luna tokens.”
In October, Do Kwon filed a motion for summary judgement against the SEC seeking to dismiss allegations of multi-billion-dollar securities fraud.
Jump Trading has been tied in with the mess as it emerges through documentation that Do Kown struck a deal with the trading firm.
According to the report, “Kwon, on behalf of Terraform, engaged in deceptive conduct when he secretly made a deal with Jump to step in and restore the $1 peg [of UST] in exchange for modifying the terms of an agreement for LUNA tokens.”
Do Kwon Arrested in Montenegro
Following the fallout from a $40 billion loss in 2022 placed Terraform in the vanguard of crypto firms facing adversities. Since the collapse of UST and LUNA, the SEC has sued Terraform Labs and Do Kwon, alleging that both the Anchor Protocol and the LUNA token are “crypto asset securities,” thus Terraform was selling unregistered securities and security-based swap and violated respective regulations.
Do Kwon was arrested in Montenegro while the U.S. and South Korea have requested his extradition. Earlier this month, Kwon successfully appealed his extradition ruling.