Apr 5, 2024 - Business

Terraform Labs and co-founder Do Kwon found liable in NY civil fraud trial

Photo collage of a gavel and a dollar bill.

Illustration: Shoshana Gordon/Axios

A federal Manhattan jury on Friday found Terraform Labs and co-founder Do Kwon liable for securities fraud in a civil trial brought by the U.S. Securities and Exchange Commission, Bloomberg reports.

Why it matters: The 2022 collapse of Kwon's Terra stablecoin helped accelerate a brutal cryptocurrency downturn that obliterated billions in market value, wiped out many crypto investors — and eventually culminated in FTX's dramatic implosion.

  • Kwon eventually went into hiding, sparking a wild extradition saga that spanned Montenegro, South Korea and the U.S.
  • The SEC's complaint against Terraform and Kwon also raises questions about the commission's views on stablecoins, and whether they're securities.

Zooming in: The seven-person jury deliberated for less than two hours, finding that investors were misled about the stability of Terraform's UST stablecoin, which the company and Kwon was algorithmically pegged to the dollar.

  • It also found that Kwon and Terraform falsely claimed that Korean payments app Chai used Terraform's blockchain tech for transactions.

What they're saying: "We are very disappointed with the verdict, which we do not believe is supported by the evidence," a Terraform spokesperson said in a statement to Bloomberg.

  • "We continue to maintain that the SEC does not have the legal authority to bring this case at all, and we are carefully weighing our options and next steps."

What's next: Kwon is also facing criminal fraud charges in the U.S. and South Korea.

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