Following a nine-day trial, a jury has found Terraform Labs and its co-founder Do Kwon liable for defrauding investors in the collapse of TerraLUNA in 2022.
The verdict was announced by the SEC on April 5 in a press release. The regulator highlighted that the jury held both parties responsible for what they described as a “massive crypto fraud” that led to “devastating losses for investors” and wiped out $40 billion in market value “overnight.”
While penalties or injunctions against Terraform Labs have not yet been secured by the SEC, a spokesperson for the company rejected the verdict and the lawsuit’s premise, claiming that the SEC “does not have the legal authority to bring this case.” Additionally, the company stated that they plan to appeal the ruling.
As for Do Kwon, the civil verdict does not imply criminal guilt. He is facing separate criminal charges in the US and South Korea related to the collapse of Terra. Despite a federal judge postponing the SEC civil trial to late March to accommodate Kwon’s attendance, his extradition from Montenegro is still pending approval.
The extradition process has faced obstacles, with Montenegro’s Supreme Court recently blocking it and sending it back for further review. Both the US and South Korea have been contending for Kwon’s extradition, with previous rulings in favor of both countries before the setbacks occurred.
The collapse of TerraUSD stablecoin in May 2022 played a crucial role in the broader liquidity crisis that affected the crypto lending market. This resulted in Bitcoin prices plummeting from $35,000 in May to under $20,000 by November.
Though the SEC issued a subpoena against Terraform Labs during the crisis in June 2022, they did not file a complaint until February 2023. A ruling in December 2023 had already found Kwon and Terraform Labs guilty of violating the Securities Act 1933.
The jury’s decision marks a significant development in the aftermath of the TerraLUNA collapse, indicating that legal actions are being taken against those involved in what has been deemed a multi-billion dollar fraud.
