TerraUSD and Luna Founder Charged by SEC and Reportedly Hiding

The company and founder behind cryptocurrencies TerraUSD and Luna have been charged with defrauding investors.

The Securities and Exchange Commission (SEC) said in a Thursday (Feb. 16) press release that it has charged Singapore-based Terraform Labs and Do Hyeong Kwon with violating the registration and anti-fraud provisions of the Securities Act and the Exchange Act.

The SEC said in the release that it alleges that they marketed crypto assets securities to investors seeking to earn a profit while misleading them about the value and stability of their products.

“We allege that Terraform and Do Kwon failed to provide the public with a full, fair and truthful disclosure as required for a host of crypto asset securities, most notably for Luna and Terra USD,” SEC Chair Gary Gensler said in the release. “We also allege that they committed fraud by repeating false and misleading statements to build trust before causing devastating losses for investors.”

The Wall Street Journal reported Thursday that Kwon appears to be in hiding, that prosecutors in South Korea have obtained an arrest warrant for him and that a notice from Interpol has law enforcement around the world looking for him.

TerraUSD had been the third-largest stablecoin by market cap before collapsing in May.

In a 24-hour period that month, TerraUSD shifted between $0.03 and $0.83, in turn causing the implosion of the price of the algorithmic stablecoin’s partner token, Luna.

Luna began May above $80 but fell below $0.01 by May 12, having wiped out nearly all of its $29 billion market capitalization.

The events led U.S. Treasury Secretary Janet Yellen to call for new regulations on stablecoins, telling the House Financial Services Committee, “I wouldn’t characterize it at this scale as a real threat to financial stability, but they’re growing very rapidly and they present the same kind of risks that we have known for centuries in connection with bank runs.”

The SEC said in its press release that Kwon and Terraform Labs had tried to prevent the regulator from obtaining information about their business during its investigation.

“This case demonstrates the lengths to which some crypto firms will go to avoid complying with the securities laws, but it also demonstrates the strength and commitment of the SEC’s dedicated public servants,” Gensler said in the release.