Tai Mo Shan misled investors by stabilizing Terra USD’s peg through external trades.
The SEC classified LUNA as a security, citing unregistered transactions violating U.S. federal laws.
Tai Mo Shan decided to pay over $123 million in fines and penalties.
The U.S. Securities and Exchange Commission (SEC) has charged Tai Mo Shan Limited, a subsidiary of Jump Crypto Holdings LLC, for misleading investors about the stability of Terra USD (UST) and unlawfully offering unregistered LUNA securities.
Misleading Actions Surrounding Terra USD Stability
The SEC accused Tai Mo Shan of deceiving investors about the $1 peg stability of Terraform’s algorithmic stablecoin UST. In May 2021, when UST’s value dropped below $1, Tai Mo Shan intervened under an agreement with Terraform Labs to stabilize the price.
Terraform incentivized Tai Mo Shan with discounted LUNA tokens to purchase UST and restore its value. On May 19, 2021, the company made UST purchases above $20 million, partly stabilizing the coin’s price. However, the SEC argued that these interventions misled the market into believing the algorithm maintained the peg, concealing the reliance on external intervention.
Unregistered Securities Offerings of LUNA, Settlement and Penalties
Tai Mo Shan also faced allegations of acting as a statutory underwriter for LUNA tokens issued by Terraform Labs. Between January 2021 and May 2022, the company obtained LUNA tokens and sold them on U.S.-based platforms without proper registration.
The SEC categorised LUNA as a security, saying that Tai Mo Shan’s purchase and issuance activities violated federal securities laws. This conduct was central to the SEC’s charges of unregistered securities transactions. As part of the settlement, Tai Mo Shan agreed to pay $73.45 million by legal terms, $12.91 million before judgment interest, and a $36.72 million civil penalty.
SEC’s Stance on Crypto Market Compliance
SEC Chair Gary Gensler repeated the importance of regulatory compliance in the digital assets market. He highlighted that misleading investors and avoiding securities laws cause damage to the public.
This case follows an earlier lawsuit towards Terraform Labs and its founder, Do Kwon, who was held responsible for fraud and unregistered securities activities. They agreed to pay $4.5 billion in restitution, revealing the consequences of the Terra ecosystem’s collapse.
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