The SEC’s complaint, filed in a New York district court, alleges that Kwon and Terraform Labs violated securities laws by issuing and selling unregistered securities in the form of LUNA tokens. The complaint also alleges that Kwon and Terraform Labs made false and misleading statements about Terra’s business and operations.
According to the complaint, Kwon and Terraform Labs first announced their plans to create a stablecoin in an online post in October of 2020. The post claimed that the stablecoin would be backed by a reserve of U.S. dollars. In January of 2021, Kwon and Terraform Labs announced that they had successfully restored the UST/LUNA peg, which had been broken since the collapse of Terra.
In exchange for their help in restoring the peg, the unnamed trading firm received discounted LUNA tokens. The firm then sold.
According to people familiar with the matter, Jump Crypto, a Chicago-based company whose parent has deep roots in conventional finance and has become a giant in digital assets, has been subpoenaed by the SEC.
A spokesperson for Jump Crypto said the company had no comment. The news was first reported by The Block.
The U.S. Securities and Exchange Commission’s (SEC) complaint this week accused Kwon and Terraform of committing securities fraud and selling unregistered securities that hurt U.S. retail. This could have a significant impact on the future of Jump Crypto and its parent company.
Voting on related issues.
That company – which CoinDesk’s sources identified as Jump Crypto – was able to buy heavily discounted luna tokens, the assets that supported UST. The firm deployed only $62 million to help keep UST’s price near $1 in May 2021, according to the SEC complaint, but earned $1.28 billion by selling off discounted tokens that it had purchased according to the terms of its agreement with Terraform Labs.
Jump Crypto was a big player in the Terra ecosystem, frequently posting governance proposals and voting on related issues.
Terraform Labs has been in the news lately, with their stablecoin UST. UST was supposed to stay pegged to the price of $1 solely as a result of a state-of-the-art “algorithm.” That algorithm – which was codified in blockchain-based computer code called smart contracts – was supposed to print and burn luna, UST’s speculative sister token, to serve as a sort of shock absorber for UST’s price.
But it seems that the SEC has other ideas. The SEC contends, however, that Terra’s stablecoin ecosystem relied on human-driven market-making operations, which could easily be manipulated to drive the price of UST up or down.
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