Terraform Labs and Do Kwon have been charged with fraud in the SEC case

A jury found Terraform Labs and co-founder Do Kwon guilty of defrauding investors in a civil case with the United States Securities and Exchange Commission (SEC).

In an April 5 announcement, SEC Enforcement Director Gurbir Grewal said a judge in the U.S. District Court for the Southern District of New York found Kwon and Terraform liable after a brief discussion of the civil enforcement case. The SEC trial began on March 25 without Kwon, who remains in Montenegro while courts decide whether to grant extradition requests from the US or South Korea.

“We are pleased that today's jury verdict found Terraform Labs and Doo Quon responsible for massive crypto fraud,” Grewal said. “Terraform Labs and Kwon's former CEO misled investors about the stability of the crypto asset's security and algorithmic stablecoin, called TerraDollar, as to whether a popular payment app would use Terraform's blockchain to process and settle payments.

Grewal reiterated calls for compliance, noting that Terraform's failure to register with the regulator has “very real consequences” for investors. During the trial, SEC attorneys likened the platform to a “house of cards” and that the company and Kuhn lied to investors.

“We are deeply disappointed by the ruling, which we do not believe is supported by the evidence,” a Terraform Labs spokesperson told Cointelegraph.

A jury found Kwon and Terraform liable on six counts, according to a verdict filed April 5 in the U.S. District Court for the Southern District of New York. They also determined that the platform acted “negligently” by making false or misleading statements regarding the supply or sale of TerraUSD (UST), LUNA or WLUNA.

Terraform Labs' algorithmic stablecoin UST crashed in May 2022 following claims about blockchain use cases and others. The platform's collapse contributed to the massive crypto market crash, resulting in record losses from firms including FTX, BlockFi and Celsius.

Related: Terra's Crash Year: Society Reflects on Lessons Learned

The SEC filed charges against Terra and Kwon in February 2023, accusing the two of “orchestrating[ed] A multi-billion dollar crypto asset underwriting scam. The civil case could have broader implications for crypto companies operating in the US – in December, Judge Jed Rakoff granted a partial summary judgment to Terraform regarding the unregistered supply and sale of security-based swaps.

It is unclear what the ruling means for Kwon's extradition from Montenegro. As of April 5, following the decision of the country's Supreme Court, their case has returned to the lower court to determine whether they can be extradited to the US or South Korea. He faces criminal charges in both countries.

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