Terraform Labs and Do Kwon held responsible for fraud in SEC lawsuit.

Terraform Labs and its co-founder, Do Kwon, have been found guilty of fraud in a case brought by the U.S. Securities and Exchange Commission (SEC). After a brief deliberation, the jury reached a verdict in favor of the SEC’s claims against Terraform Labs and Kwon. The trial, held in the U.S. District Court for the Southern District of New York, commenced on March 25, with Kwon’s absence as he awaits extradition deliberations in Montenegro.

Gurbir Grewal, the SEC Enforcement Director, expressed satisfaction with the jury’s decision, stating that Terraform Labs and Kwon misled investors about the stability of their crypto asset security, Terra USD, and other aspects of their business. He emphasized the importance of regulatory compliance and highlighted the consequences for investors due to Terraform’s lack of registration with the SEC.

However, Terraform Labs contested the verdict, stating that it was not supported by the evidence presented during the trial. They questioned the SEC’s legal authority to pursue the case and indicated they are considering their options moving forward.

The jury found Kwon and Terraform liable for six charges related to making false or misleading statements about TerraUSD (UST), Luna, and wLUNA. Terraform Labs faced significant challenges following the collapse of its algorithmic stablecoin in May 2022, which contributed to a broader downturn in the crypto market and led to bankruptcy filings from several firms.

The SEC initiated the lawsuit against Terra and Kwon in February 2023, accusing them of orchestrating a multi-billion dollar crypto asset securities fraud. The outcome of the civil case could have implications for other crypto firms operating in the U.S., although a partial summary judgment in favor of Terraform was granted regarding certain aspects of the case.

The verdict’s impact on Kwon’s extradition from Montenegro remains uncertain. His case has been referred back to a lower court following a decision by the country’s Supreme Court, where it will be decided whether to grant extradition to the U.S. or South Korea, where he faces criminal charges.