Terraform Labs Securities Enforcement Case: The Stablecoin That Depended on LUNA

Terraform Labs owes $4,473,828,306 under a civil judgment in the SEC’s securities enforcement case over misleading stablecoin and blockchain-payment claims. The agency challenged what investors were told about UST’s stability and a payment application’s use of the Terra blockchain.

This page follows Terraform’s investment claims, civil judgment and investor-payment terms. Our broader account of crypto and digital asset securities fraud covers the offering, trading and custody patterns across the industry.

What Did Terraform Sell Investors?

Terraform sold a connected set of crypto investments, with different products supplying different parts of the pitch. In its charging announcement, the SEC described Singapore-based Terraform Labs and its chief executive raising billions of dollars from investors from April 2018 until the scheme’s collapse. It alleged that many of those sales were unregistered.

UST, also called Terra USD, was promoted as an algorithmic stablecoin. According to the SEC, its supposed peg to the U.S. dollar depended on interchangeability with LUNA, another Terraform token.

Terraform also offered LUNA itself and MIR, or mirror tokens. Its mAssets were designed to pay returns by mirroring the prices of U.S. company stocks. The SEC alleged that Terraform repeatedly told investors its tokens would increase in value, tying the sales pitch to the prospect of profit. Our account of crypto offerings and yield products follows those different investment arrangements across other cases.

What Did Terraform Promise About Yield and Payments?

The SEC alleged that Terraform promoted UST as a yield-bearing stablecoin paying as much as 20% interest through Anchor Protocol. That offer combined a return on the investment with a claim about the token’s stability.

The payment-app claim supplied another reason to buy into the business. The SEC alleged that Terraform and its chief executive repeatedly misled investors by saying a popular Korean mobile payment application used the Terra blockchain to settle transactions that would add value to LUNA. The claim connected ordinary payment activity to the investment’s supposed value.

The agency also alleged that Terraform misled investors about UST’s stability. We see the absurdity in its enforcement director’s account: the defendants controlled the stablecoin’s price rather than the code. The code got the credit.

UST lost its dollar peg, and its price and those of its sister tokens fell close to zero, the SEC reported. The failure brought the connected promises into the same picture: the claimed stability, the advertised return and the story about activity supporting token value.

What Did the Terraform Judgment Require?

The U.S. District Court for the Southern District of New York approved a final consent judgment against Terraform and its chief executive on June 12, 2024. The SEC’s investor notice describes the company’s obligation as money to be returned from the misconduct, interest and civil penalties. Payments to harmed investors and creditors through the bankruptcy case would satisfy that obligation, with the SEC receiving payment only after investors and creditors were paid in full.

The executive had a separate transfer requirement: at least $204,320,196 to the Terraform bankruptcy estate for distribution to harmed investors. The SEC described the assets covered by that requirement as including cash, all crypto assets of the Luna Foundation Guard and the executive’s PYTH tokens.

An obligation under a judgment, a transfer into an estate and a payment to an investor describe different events. Our page on investor losses and recovery claims explains how those measures fit together.

What Could a Terraform Insider Explain?

A Terraform insider could connect an investment claim to the system, transaction or decision behind it. We would build that account around the person’s actual work and the records that explain the discrepancy. The strongest starting point may be a narrow part of the business that the employee or contractor knows well.

For payment integration work, we would compare the investor-facing description with integration specifications, transaction records and settlement records. The question is what the application did with the Terra blockchain and how that activity connected to the claimed value for LUNA. Someone responsible for making the systems work may understand a discrepancy that a marketing presentation leaves invisible.

For treasury and Anchor operations, we would compare the advertised return with payout calculations, funding records and customer credits. We would also examine the records behind conversions and the claimed peg. Knowing which account supplied a payment, or which decision changed its funding, can give a financial explanation to a number shown on a customer’s screen.

For engineers and trading personnel, relevant comparisons could involve code versions, parameter changes, transaction records and the communications explaining a change. The public statement describes what investors were meant to believe. The operating history can help establish what the business was doing when it made that statement. We examine the connection with the people who understand the system.

The Same Gap Between the Crypto Pitch and the Books

The SEC’s Unicoin allegations offer a useful comparison between a crypto investment’s sales story and its financial records. The agency alleged false claims about asset backing, registration and sales in offerings of rights certificates and common stock. It alleged that claimed rights-certificate sales above $3 billion contrasted with no more than $110 million actually raised.

The rights certificates concerned future tokens, so the promise began before a buyer received those tokens. In Terraform, the SEC challenged representations about products already linked through conversion, yield and claimed payment activity. In each account, we would compare the specific thing sold and the promise made with the records of the business supporting it.

Whistleblower Rewards and Terraform’s Securities Fraud Case

Eligible SEC whistleblowers can share 10% to 30% of qualifying sanctions collected when an SEC action imposes more than $1 million in monetary sanctions. The whistleblower award rewards qualifying information that contributes to enforcement. We assess how your knowledge of payments, token operations or investor representations can make the conduct understandable and testable.

A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers. That program concerns fraud against the government, while the Terraform action addressed securities fraud through the SEC. We bring the facts and the appropriate whistleblower expertise together around the conduct you know.

You Know What the Technology Actually Did

If you know where a token’s promised stability, yield or payment activity diverged from its operation, speak to one of our Whistleblower Experts about the system you worked on. We build your strongest crypto securities whistleblower case with you and bring in crypto securities fraud whistleblower lawyers who can connect the investment promises to the technical and financial evidence. Start with the part you know, and we stay beside you as the case takes shape.