The U.S. Securities and Exchange Commission (SEC) has imposed a $123 million fine on Tai Mo Shan Limited, a subsidiary of Jump Crypto Holdings, for its role in misleading investors about the stability of TerraUSD.
The firm also faced charges of conducting unregistered securities transactions linked to the sale of LUNA, a token issued by Terraform Labs.
Allegations of fraud and investor deception
According to the SEC, Tai Mo Shan used deceptive practices to stabilize TerraUSD, a so-called algorithmic stablecoin developed by Terraform Labs. When TerraUSD lost its $1 peg in May 2021, Tai Mo Shan purchased over $20 million of the token to restore its value artificially. This gave investors the false impression that the algorithm maintaining TerraUSD’s stability was functioning properly. SEC Chair Gary Gensler emphasized that these actions misled the public and resulted in widespread financial losses in the crypto market.
The SEC also found that Tai Mo Shan acted as a statutory underwriter by participating in the sale of LUNA, which the regulator has classified as a security. These activities were conducted without proper registration, violating federal securities laws.
Settlement details
Tai Mo Shan agreed to pay a total settlement of $123 million without admitting or denying the allegations. This includes $73.45 million in disgorgement, $12.91 million in prejudgment interest, and a $36.72 million civil penalty. The firm has also agreed to cease from further violations of securities laws.
The SEC’s investigation revealed that Jump Crypto profited significantly from its involvement with Terraform Labs, reportedly earning up to $1 billion. This financial relationship contributed to Terraform’s efforts to maintain TerraUSD’s stability, which eventually collapsed, triggering a broader crisis in the cryptocurrency market.
Impact of the TerraUSD collapse
The failure of TerraUSD and its associated ecosystem had far-reaching consequences, wiping out $40 billion in investor assets. Terraform Labs faced separate SEC litigation, ultimately agreeing to pay $4.5 billion to settle claims related to its role in the collapse. Jump Crypto’s intern-turned-president, Kanav Kariya, was also linked to the project through his involvement with the Luna Foundation Guard, which managed TerraUSD’s reserves.
The case against Jump Trading highlights the ongoing challenges in regulating the cryptocurrency industry. It reminds us of the risks posed by unregulated practices and the importance of transparency to protect investors in digital asset markets.
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