The U.S. Securities and Exchange Commission (SEC) is reportedly investigating the collapse of Terraform Labs and the algorithm stablecoin terrausd (UST).” SEC enforcement attorneys are investigating whether Terraform Labs broke securities and investment product rules.”
SEC Launches Investigation of Terraform Labs and UST
The U.S. SEC is investigating Terraform Labs and its algorithmic stablecoin terrausd (UST), Bloomberg reported Thursday, citing people familiar with the matter.
UST lost its peg to the US dollar in early May. The stablecoin quickly lost its value and collapsed along with cryptocurrency Terra (LUNA). Both coins were created by Terraform Labs CEO Do Kwon, who then launched LUNA 2.0.
The SEC is investigating whether UST’s marketing before the crash violated federal investor protection regulations, the publication said. Specifically, SEC enforcement attorneys are investigating whether TerraForm Labs violated securities and investment product rules.
The collapse of two cryptocurrencies has prompted lawmakers in various countries to consider regulating stablecoins. In the U.S., Treasury Secretary Janet Yellen said there was an urgent need to regulate stablecoins; SEC Chairman Gary Gensler later said many crypto tokens would fail.
Kwon already faces scrutiny from the SEC over Mirror Protocol. In a ruling Wednesday, Terraform Labs and CEO Kwon were ordered to comply with an SEC subpoena filed in February; Kwon’s appeal was dismissed by the court.
Regarding the SEC investigation, Singapore-based Terraform Labs told the news outlet that it was unaware of the SEC’s investigation into UST.” Kwon said, “We are unaware of any SEC investigation into Terrausd at this time – we have received no such communication from the SEC and are aware of no new investigations other than those involving the mirror protocol.
Legal experts believe that Kwon will not face criminal charges in the United States. They said he is more likely to face civil liability and regulatory penalties.
In Kwon’s home country of South Korea, the government has launched an investigation into the collapse of Terra and Terrausd. A class action lawsuit has also been filed against Terraform Labs, Kwon, and another co-founder. In addition, the Seoul police are investigating whether Terraform Labs staff embezzled the company’s bitcoins.
Terraform Labs once had a subsidiary in South Korea. However, Kwon dissolved it days before the collapse of UST and LUNA.
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