The Securities and Exchange Commission (SEC) recently made headlines by charging Tai Mo Shan Limited, a subsidiary of Jump Crypto, with misleading investors about Terra USD (UST) after the stablecoin lost its $1 peg. The SEC alleged that Tai Mo Shan engaged in trading activities that created a false impression that UST’s price was solely sustained by its advertised algorithm. When UST lost its peg in May 2021, Terraform Labs enlisted Tai Mo Shan to purchase over $20 million worth of UST in an attempt to restore its value.
According to the SEC, Terra’s algorithmic approach did not independently maintain UST’s parity with the dollar as advertised. Instead, Tai Mo Shan’s intervention played a significant role in stabilizing the token’s price. The commission also accused Tai Mo Shan of distributing LUNA as unregistered securities in the U.S., acting as a statutory underwriter by quickly selling tokens obtained from Terraform into the market.
As a result of the charges, Tai Mo Shan agreed to pay a total of $123 million, including disgorgement, prejudgment interest, and a civil penalty. The firm neither admitted nor denied the findings but agreed to cease further violations of registration and fraud provisions.
The collapse of the Terra Luna ecosystem has been a subject of concern since 2022 when deficiencies in its stablecoin model were exposed, leading to a loss of market confidence. Terra Classic (LUNC), the original chain, continues to operate at significantly lower valuations and utility, while a new Terra (LUNA) fork was launched in an effort to rebuild the network.
Terraform Labs, co-founded by Do Kwon, has faced legal challenges, including a case where Terraform and Kwon were found liable for fraud and unregistered securities offerings. The firm filed for Chapter 11 bankruptcy in Jan. 2024, with leadership changes complicating the project’s recovery path.
Despite efforts to regain trust through the introduction of a new token and chain, Terra’s reputation has been tarnished by ongoing controversies. Market participants suffered losses estimated at over $40 billion across digital assets following UST’s collapse. Terra Classic now trades at a fraction of its previous value, while the newer Terra (LUNA) token faces similar downward pressure.
Terraform’s legal complications have been exacerbated by Do Kwon’s legal troubles, including a conviction in Montenegro for traveling with falsified documents. Regulators are also investigating whether other tokens linked to Terraform qualify as securities, highlighting the need for increased oversight of issuance protocols and secondary market trading.
Overall, the Terra Luna ecosystem’s future remains uncertain as it navigates legal challenges and attempts to rebuild trust among investors and market participants.