The regulator said the evidence that Do Kwon violated securities laws was “overwhelming.”

The U.S. Securities and Exchange Commission (SEC) has called for an end to its legal dispute with Terraform Labs and its co-founder Do Kwon, calling on a Manhattan judge to grant summary judgment in the case.

The agency believes the evidence is “clear, undisputed, and overwhelming” that the crypto tycoon violated securities laws when distributing the Terra blockchain’s native cryptocurrency LUNA and its now-defunct stablecoin TerraUSD (UST).

According to the SEC, Do Kwon’s lies

According to court documents filed by the SEC on Friday, Kwon and Terraform planned to "deceive" the public about the security of their protocol and tokens, as well as the extent to which they could actually be used.

For example, the company falsely claimed that Terra was working with Chai, a popular online payment platform in South Korea, to process merchant transactions, while allegedly conducting millions of “fake transactions” to make the network appear more active than it actually was.

Kwon also lied to investors in May 2021 about UST’s inherent stability, claiming that its peg to the U.S. dollar “automatically self-heals” due to the ingenuity of its design and its relationship to LUNA.

While the algorithmic “stablecoin” recovered from the then-temporary decoupling, the SEC claims that this was not due to Terra’s design.

The SEC alleges that “Defendants entered into a secret agreement with a third party to drive UST back to $1 in exchange for that party selling LUNA at a significantly reduced price.”

12 months later, UST collapsed completely, a massive decoupling event proved too much for the protocol to withstand, and LUNA entered a hyperinflationary death spiral.

The Luna Foundation Guard sold over 80,000 BTC at the time but failed to protect the peg, ultimately causing trouble in the cryptocurrency market and setting off a series of contagious cryptocurrency fallouts throughout the year.

Violation of securities laws

The SEC also said the defendants issued LUNA and MIR to investors through the open market without first registering their sales with the agency.

The SEC raised questions about the way LUNA and the company’s other “crypto-asset securities” were marketed to investors. Buyers were promised a share of transaction fees generated by the Terra blockchain, while LUNA’s value would appreciate as network adoption increased.

“Defendants viewed LUNA as an investment whose value would increase in line with defendants’ efforts to increase usage of the Terra blockchain,” the SEC said.

As the agency has often stressed in similar cases, a key aspect of the Howey test — the legal precedent that identifies investment contracts — requires that they must promise profits based on the efforts of another group.

In July, the U.S. Securities and Exchange Commission (SEC) failed to label XRP as a security-like token. #SEC  #Terra