2.5Y After Terra and Luna Collapse, SEC Reaches $123 Million Settlement with Crypto Firm

The Securities and Exchange Commission (SEC) has fined Tai Mo
Shan Limited $123 million for reportedly misleading investors about the stability
of the Terra USD (UST) stablecoin and conducting unregistered securities
transactions involving LUNA crypto assets.

Tai Mo Shan Hit With $123M SEC Fine Over Terra USD Stablecoin Allegations

According to the SEC statement,
Jump Crypto Holdings subsidiary acted negligently when it engaged in trading
activities that created a false impression about Terra USD’s stability
mechanism during a May 2021 price decline.

The firm purchased over $20 million of UST tokens while
receiving incentives from Terraform Labs, masking the fact that the
stablecoin’s dollar peg was being maintained through direct market intervention
rather than its promised algorithmic mechanism.

The enforcement action follows an April 2024 court ruling
that found Terraform Labs and founder Do Kwon liable for fraud, resulting in a
$4.5 billion settlement. The SEC determined that Tai Mo Shan also violated
securities laws by acting as an unregistered underwriter of LUNA tokens between
January 2021 and May 2022.

“This case reminds us that, too many times in the crypto
markets, we’ve seen significant investor losses due to fraud,” said SEC Chair
Gary Gensler. “Here, the impact reverberated throughout the crypto markets,
eventually costing the savings of countless investors. Regardless of the
labels, crypto market participants should comply with the securities laws where
applicable and not deceive the public. Otherwise, investors get hurt.”

The settlement includes $73.5 million in disgorgement, $12.9
million in interest, and a $36.7 million civil penalty. Tai Mo Shan agreed to
the terms without admitting or denying the findings.

Terra Ecosystem Collapse Led to $50B Cryptocurrency Losses

The cryptocurrency market experienced a significant
disruption when Terra’s ecosystem, one of the largest blockchain networks,
failed in May 2022, resulting in substantial market value losses and broader
industry implications.

The situation deteriorated when large withdrawals from the
Anchor Protocol triggered a deviation in UST’s dollar peg. This initial price
movement led to increased selling pressure, causing both UST and LUNA tokens to
decline rapidly. LUNA, which had reached record highs earlier that spring,
depreciated to negligible values within days.

The Terra blockchain temporarily ceased operations as market
participants attempted to process transactions amid the price decline. The
event affected multiple cryptocurrency firms, leading to operational challenges
for several digital asset lenders and trading platforms.

Do Kwon, who founded Terraform Labs, faced subsequent legal
challenges. Authorities apprehended him in Montenegro while traveling with
incorrect documentation. U.S. prosecutors filed multiple charges, including
allegations of securities violations.

The incident prompted regulatory bodies worldwide to
increase their scrutiny of stablecoin mechanisms and cryptocurrency markets.
Financial supervisors have since implemented stricter oversight measures for
digital asset operations, particularly focusing on stablecoin reserves and
trading practices, including MiCA in Europe.

This article was written by Damian Chmiel at www.financemagnates.com.