Lawsuit Filed Against TerraForm Labs, 3AC, and Do Kwon for Violating the Exchange Act
In the realm of cryptocurrency, Terraform Labs and its co-founder, Do Kwon, are currently embroiled in a series of legal battles, primarily centred around fraud charges related to the TerraUSD (UST) collapse. Despite the absence of a specific class action lawsuit focusing on Exchange Act violations, the ongoing legal proceedings highlight significant pressure on Terraform Labs.
The legal woes began in May 2022, when the price of UST plummeted to a historic low of $0.07, a dramatic drop from its previous value of $1.00. This price decline was mirrored by LUNA, Terra's native token, which saw a 99.7% drop from May 7, 2021, to May 12, 2022, and has yet to recover. The defendants, unnamed in the complaint, are accused of infringing the common Californian Law, the Securities Act, and the Exchange Act, among other charges.
The complaint alleges that the defendants artificially inflated the monetary value of Terra tokens, endorsed false statements, and omitted true statements regarding material facts. It also includes claims under the common law of California, specifically regarding the inflation of the monetary value of Terra tokens.
In a significant development, Terraform Labs agreed to a $4.5 billion settlement with the SEC in 2024, indicating a substantial legal resolution related to securities fraud allegations. Do Kwon, personally, faces nine felony charges in the US federal court, including securities and commodities fraud. His case is ongoing, with a jury trial scheduled for February 2026.
The GENIUS Act, which addresses stablecoin regulations, could potentially influence the interpretation of these charges in court. This Act, passed by the Senate and awaiting House review, could redefine how stablecoins are regulated under US law. If passed, it might affect the legal battle against Do Kwon and Terraform Labs by reassessing whether algorithmic stablecoins like TerraUSD fall under securities regulations.
While the legal landscape remains complex, the ongoing legal proceedings against Terraform Labs and Do Kwon underscore a broader effort to address securities law violations in the cryptocurrency sector. As the legal battle unfolds, investors and the cryptocurrency community will closely watch the developments to understand the implications for the future of digital assets.
- The ongoing legal battles against Terraform Labs and its co-founder, Do Kwon, are not only about fraud charges tied to the TerraUSD (UST) collapse, but also about infringing common Californian Law, the Securities Act, and the Exchange Act.
- In a decentralized finance (DeFi) business context, Terraform Labs' defendants are accused of artificially inflating the monetary value of Terra tokens, endorsing false statements, and omitting true statements regarding material facts.
- The price decline of UST to a historic low of $0.07 in May 2022 and the dramatic drop of LUNA, Terra's native token, caused significant pressure on Terraform Labs and led to legal proceedings.
- A crypto protocol based on blockchain technology like Terra is faced with liquidity challenges as a result of these legal woes, adding to the complexity of the trading landscape for digital assets.
- The revision of stablecoin regulations through the GENIUS Act, now awaiting House review, could potentially impact the legal battle against Do Kwon and Terraform Labs by reassessing whether algorithmic stablecoins like TerraUSD fall under securities regulations.
- As the legal proceedings against Do Kwon and Terraform Labs continue, they highlight the need for greater regulatory oversight in the cryptocurrency sector and emphasize the importance of adhering to securities law for businesses operating in the digital asset industry.
