The U.S. Securities and Exchange Commission (SEC) has accused Tai Mo Shan Limited, a subsidiary of Jump Crypto Holdings LLC, of misleading investors regarding the stability of the algorithmic stablecoin Terra USD (UST).
Misleading Investors About Terra USD
The SEC claims that Tai Mo Shan created the impression that the algorithmic mechanism from Terraform Labs was preserving UST’s peg to one dollar. When UST’s value fell below one dollar in May 2021, Tai Mo Shan and Terraform Labs entered into an agreement to stabilize the price.
As part of this agreement, Terraform encouraged Tai Mo Shan to purchase UST by offering discounted LUNA tokens, aiming to restore its stability. On May 19, 2021, Tai Mo Shan executed UST purchases exceeding 20 million dollars, temporarily stabilizing the stablecoin’s price.
Sale of LUNA as Unregistered Securities
The SEC’s findings revealed that Tai Mo Shan acted as a legal guarantor for Terraform Labs and purchased LUNA tokens intending to resell them on U.S.-based platforms.
Between January 2021 and May 2022, Tai Mo Shan offered and sold these tokens as unregistered securities. The SEC classified LUNA as a security and stated that Tai Mo Shan distributed this cryptocurrency to the public.
SEC Chair Gary Gensler’s Remarks on Investor Protection
“In crypto markets, we have often seen investor losses due to fraud. Regardless of labels, participants in crypto markets must comply with securities laws and not deceive the public. Otherwise, investors suffer.” – Gary Gensler
The SEC indicated that Tai Mo Shan’s actions were misleading to investors and highlighted a lack of awareness regarding external intervention-based stabilization. The company did not accept the SEC’s investigation claims but agreed to comply with a cease-and-desist order to prevent future violations of federal securities laws.
Tai Mo Shan is set to pay 73.45 million dollars in restitution, 12.91 million dollars in pre-judgment interest, and 36.72 million dollars in penalties. These fines aim to compensate for unlawful gains obtained through misleading actions and unregistered transactions.
This case is seen as part of the SEC’s efforts to regulate the cryptocurrency industry and protect investors from misleading practices. It also notes that Terraform Labs and its founder, Do Kwon, previously faced fraud and unregistered securities sale charges, agreeing to pay 4.5 billion dollars.
The SEC’s actions underline the importance of transparency and legal compliance in crypto markets, demonstrating the regulatory body’s determination to protect investors.
