SEC Investigating Terraform Labs' Marketing Prior to Collapse

The U.S. Securities and Exchange Commission (SEC) is investigating whether TerraUSD’s (UST) marketing prior to the collapse violated federal investor-protection regulations, according to a Bloomberg report. 

According to Bloomberg’s anonymous source, SEC enforcement attorneys are looking into whether Terraform Labs broke any rules for securities and investment products prior to the crash of its stablecoin UST, which saw that very stablecoin go from its $1 peg to mere pennies in the course of a week. In addition, it also saw its other cryptocurrency LUNC (previously referred to as LUNA), go from $61 on May 9 down to virtually zero in three days. 

Following the collapse, U.S. Treasury Secretary Janet Yellen said that UST’s collapse exposed the dangers of tokens that are meant to be pegged to the U.S. dollar. Acting U.S. Comptroller of the Currency, Michael Hsu, called the collapse a “wake-up call.” 

It also launched a global response on regulating cryptocurrencies with an emphasis on stablecoins. It started with Yellen advocating for stablecoin regulation by the end of the year when she spoke at a Senate banking hearing. Other countries, including the U.K. have recently come out in favor of bolstering their crypto regulations to keep consumers protected. 

Now the SEC may call upon Terraform Labs’ co-founder and CEO, Do Kwon, who has already been subpoenaed by the SEC regarding a different project called Mirror Protocol, which allows users to buy, sell and trade digital assets that mirror prices of popular stocks such as Tesla, Amazon, Disney and more. 

Under securities rules, a virtual currency may fall under the jurisdiction of the SEC if Americans buy the token to fund a company or project with the intention of profiting, according to the 1946 U.S. Supreme Court decision regarding investment contracts, Securities and Exchange Commission v. W. J. Howey Co. 

Author: Tyler Irvin

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