Lawyers representing the United States Securities and Exchange Commission (SEC) painted a damning picture of Terraform Labs, portraying it as a fraudulent empire where investors suffered substantial losses. During the first day of the civil trial at the U.S. District Court for the Southern District of New York, SEC attorney Devon Staren characterized Terra as a “house of cards” that crumbled in 2022, leaving investors with significant losses.
The civil trial commenced over a year after the SEC filed a lawsuit against Terraform Labs in February 2023. The lawsuit accused Terra and its co-founder Do Kwon of orchestrating a multi-billion dollar crypto asset securities fraud. Despite Kwon’s absence on the opening day of the trial due to his arrest in Montenegro in March 2023, the proceedings continued.
The SEC alleged that Terra and Kwon misled investors regarding the stability of TerraUSD (UST), an algorithm stablecoin that depegged from the U.S. dollar. This alleged deception had repercussions not only on Terra but also on other tokens, potentially contributing to a significant downturn in the crypto market in 2022 and leading to the bankruptcy of several companies.
The trial, initially scheduled for January, was postponed to March as both the SEC and Kwon’s legal team sought to delay proceedings in anticipation of Kwon’s participation in his defense. However, in December 2023, Judge Jed Rakoff ruled in favor of the SEC in certain aspects of the case, further complicating the legal landscape for Terraform Labs.
Terraform’s trial is just one of many legal battles unfolding in the crypto industry in 2024. Former FTX CEO Sam Bankman-Fried is scheduled for sentencing on March 28 following his conviction on seven felony charges, while former Binance CEO Changpeng Zhao, after pleading guilty to one felony charge, awaits sentencing on April 30. These cases underscore the heightened regulatory scrutiny and legal challenges faced by prominent figures and entities in the crypto sector.
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