Terra’s founder, Do Kun, was charged with fraud in an SEC lawsuit

A New York jury found Terraform Labs and its founder, Do Kwon, guilty of civil fraud along with the US Securities and Exchange Commission (SEC) on Friday, according to a Reuters report.

The SEC warned investors of Terraform Labs and Kwon's unproven claims about the stablecoin TerraUSD and others. The collapse of Terra resulted in losses of around $40 billion and was pointed to as a key trigger for the broader crypto market crash.

Following a two-week trial, the verdict was handed down in federal court shortly after closing arguments, Reuters reported. The SEC is seeking civil financial penalties and injunctions barring Kwon and Terraform from the securities industry. The collapse of TerraUSD and its associated token Luna in May 2022 caused an estimated loss of more than $40 billion and caused widespread chaos in the cryptocurrency market.

Kwon, who was arrested in Montenegro in March 2023, did not attend the hearing. Both the US and South Korea have requested his extradition on criminal charges. Terraform Labs filed for bankruptcy protection in January.

The SEC alleges that Kwon and Terraform secretly arranged for a third party to buy large amounts of TerraUSD in May 2021, and that Kwon misrepresented the reliability of TraUSD's algorithms. The regulator said Kwon and Terraform falsely advertised the use of their blockchain in Chai, a popular payment app in Korea.

Attorneys for Terraform Labs and Kuhn maintained that the company was truthful about its products and practices despite the company's failure, and that the SEC's case was based on statements taken out of context.

The company's legal representation has previously been the subject of a row with the regulator, with the SEC calling $166 million in “slush funds” for its lawyers. Those lawyers opposed the SEC's actions as a “troubling example of government overreach” that they said was intended to “harm and distract from the cause.”

In December, one of the key questions hanging over the case was resolved when a federal judge ruled that Luna and UST's enrollment and other financial regulations were safeguards.