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Terraform Labs CEO Do Kwon Violated US Securities Law, Says Judge

On Thursday, US District Judge Jed Saul Rakoff declared that Do Kwon, the CEO and founder of Terraform Labs, breached US securities law by neglecting to register UST and LUNA as securities. Rakoff, serving at the US District Court Southern District of New York, concurred with the Securities and Exchange Commission (SEC) that Terraform Labs unlawfully offered and sold unregistered securities, infringing Sections 5(a) and 5(c) of US securities law. The judge additionally determined that the SEC’s fraud case against Terraform will proceed to trial with a jury next month. According to Section 5, it is mandatory to register securities with the SEC before any individual can sell or propose to sell them.

As per the SEC, “Kwon orchestrated the primary plan to deceive investors by conveying the false impression that Chai was handling and finalizing transactions on the Terra Blockchain, contrary to the actual situation.” The SEC further asserts that the defendants consistently propagated numerous misrepresentations to investors, prospective investors, and the general public, suggesting that Chai was actively processing transactions on the Terra blockchain.

Moreover, the SEC contends, “Kwon, acting on behalf of Terraform, partook in deceptive practices by entering into a concealed agreement with Jump to intervene and restore the $1 peg for UST, in return for altering the terms of a Luna tokens agreement.”

In October, Do Kwon sought a summary judgment against the SEC, aiming to dismiss the accusations of a multi-billion-dollar securities fraud.

Jump Link

Documentation reveals that Jump Trading is implicated in the situation, as it becomes evident that Do Kwon entered into an agreement with the trading firm.

As outlined in the report, “Kwon, representing Terraform, was involved in deceptive actions by confidentially negotiating an arrangement with Jump to intervene and restore the $1 peg of UST, with the condition of altering the terms of an agreement concerning LUNA tokens.”

Do Kwon Arrested in Montenegro

After experiencing a staggering $40 billion loss in 2022, Terraform found itself at the forefront of crypto firms grappling with challenges. Subsequent to the UST and LUNA collapse, the SEC took legal action against Terraform Labs and Do Kwon. The allegations assert that both the Anchor Protocol and the LUNA token are deemed “crypto asset securities,” leading to accusations of Terraform selling unregistered securities and security-based swaps, thereby violating relevant regulations.

Do Kwon faced arrest in Montenegro, with extradition requests made by both the U.S. and South Korea. In a recent development, Kwon successfully appealed his extradition ruling earlier this month.

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