The United States Securities and Exchange Commission (SEC) has accused Tai Mo Shan Limited, a subsidiary of Jump Crypto Holdings LLC, of misleading investors about the stability of its algorithmic stablecoin Terra USD (UST).
Misleading Investors About Terra USD
The SEC alleged that Tai Mo Shan misled investors by creating the impression that Terraform Labs’ algorithmic mechanism maintained the constant value of UST at $1. When the value of UST dropped below $1 in May 2021, Tai Mo Shan and Terraform Labs made a deal to stabilize the price.
Under this agreement, Terraform offered discounted LUNA tokens to Tai Mo Shan, incentivizing it to purchase UST and restore the peg. On May 19, 2021, Tai Mo Shan temporarily stabilized the price of the stablecoin by purchasing over $20 million of UST.
Sale of LUNA as Unregistered Securities
The SEC’s findings revealed that Tai Mo Shan acted as a legal guarantor for Terraform Labs and purchased LUNA tokens with the intention of reselling them on American-based platforms.
From January 2021 to May 2022, Tai Mo Shan offered and sold these tokens as securities without registration. The SEC stated that LUNA was classified as a security and stated that Tai Mo Shan distributed this cryptocurrency to the public.
Statements by SEC Chairman Gary Gensler on Investor Protection
“In crypto markets, we have seen investor losses due to fraud many times. Regardless of labels, crypto market participants must comply with securities laws and not deceive the public. Otherwise, investors will suffer losses.” – Gary Gensler
The SEC stated that Tai Mo Shan’s actions were misleading to investors and that it was unaware of the stabilization based on external intervention. The company did not admit to the SEC’s investigative allegations but agreed to comply with the cease-and-desist order to prevent future violations of federal securities laws.
Tai Mo Shan will pay $73.45 million in restitution, $12.91 million in pre-suit interest, and a $36.72 million penalty. These penalties aim to compensate for illegal gains made through deceptive acts and unregistered transactions.
This case is seen as part of the SEC’s efforts to regulate the cryptocurrency industry and protect investors from misleading practices. It was also stated that Terraform Labs and its founder Do Kwon had previously faced accusations of fraud and unregistered securities sales and agreed to pay $4.5 billion.
These steps by the SEC underscore the importance of transparency and regulatory compliance in crypto markets and demonstrate the commitment of regulators to protect investors.
Disclaimer: The information contained in this article does not constitute investment advice. Investors should be aware that crypto currencies carry high volatility and therefore risk, and should carry out their transactions in line with their own research.
