By Jody Godoy
(Reuters) -A lawyer for the U.S. Securities and Exchange Commission told a jury in Manhattan on Friday that Terraform Labs and its founder Do Kwon repeatedly lied about the cryptocurrency platform’s success as their trial on fraud charges to investors was coming to an end. .
The SEC accuses the Singapore-based company and Kwon of misleading investors in 2021 about the stability of TerraUSD, a stablecoin designed to maintain a value of $1. The regulator also accused them of falsely claiming that Terraform’s blockchain was used in a popular Korean mobile payment app.
SEC attorney Laura Meehan said during closing arguments that the platform’s success story is “built on lies.”
“If you swing big and fail, and don’t tell people you failed, that’s fraud,” he said.
Louis Pellegrino, an attorney for Terraform, told the jury Friday that the SEC’s case relied on statements taken out of context and that Terraform and Kwon had been truthful about their products and how they worked, even when they failed.
“Terraform is still out there, trying to rebuild and make buyers whole,” he said.
The regulator is seeking civil financial penalties and orders barring Kwon and Terraform from the securities industry.
Kwon, arrested in Montenegro in March 2023, did not participate in the trial, which began on March 25. Both the United States and South Korea, of which Kwon is a citizen, have requested his extradition on criminal charges.
Kwon designed TerraUSD and Luna, a more traditional token that varied in value but was closely tied to TerraUSD.
The SEC estimates that investors lost more than $40 billion on the two tokens combined when the TerraUSD peg to the dollar failed to maintain in May 2022.
Their collapse also dragged down the value of other cryptocurrencies, including bitcoin, and caused broader chaos in the cryptocurrency market, leading several companies to file for bankruptcy in 2022.
Terraform itself filed for bankruptcy protection in January.
The SEC said Kwon and Terraform secretly arranged for third parties to purchase large amounts of TerraUSD to support the price when the stablecoin slipped from its peg a year earlier in May 2021. Kwon incorrectly attributed the recovery to reliability of TerraUSD’s algorithms, according to the regulator.
The SEC also alleged that Kwon and Terraform falsely advertised Terraform’s blockchain as being used to process and settle transactions between customers and merchants on the Chai payment app.
Pellegrino said on Friday that Terraform had disclosed that TerraUSD’s peg was due to be defended in May 2021. He said Chai had used the company’s blockchain, but the technical details of how he did so were not important to investors.