The US Securities and Exchange Commission (SEC) is reportedly investigating Terraform Labs and the collapse of algorithmic stablecoin Terrausd (UST). “SEC enforcement attorneys are investigating whether Terraform Labs violated securities and investment products rules.”

SEC initiates investigation into Terraform Labs and UST

The US SEC is investigating Terraform Labs and its algorithmic stablecoin Terrausd (UST), Bloomberg reported on Thursday, citing people familiar with the matter.

UST lost its peg to the US dollar in early May. The stablecoin quickly lost its value and collapsed along with the cryptocurrency Terra (LUNA). Both coins were created by Do Kwon, CEO of Terraform Labs, who has since launched LUNA 2.0.

The SEC is investigating whether the marketing of UST before the crash violated federal rules protecting investors, the release said. Specifically, SEC enforcement attorneys are investigating whether Terraform Labs violated securities and investment products rules.

The implosion of the two cryptocurrencies prompted lawmakers in various countries to look into regulating stablecoins. In the US, Treasury Secretary Janet Yellen said regulation of stablecoins was urgent. SEC Chairman Gary Gensler then said that many crypto tokens will fail.

Kwon is already under investigation by the SEC for the mirror protocol. In a Wednesday ruling, Terraform Labs and CEO Kwon were ordered to comply with SEC subpoenas filed in February. Kwon’s appeal was rejected by the court.

Regarding the SEC investigation, Singapore-based Terraform Labs told the news agency that it was not aware of any SEC investigation into UST. “We are not aware of any SEC investigations related to Terrausd at this time – we have received no such notice from the SEC and are not aware of any new investigation outside of the Mirror Protocol,” Kwon said.

Legal experts do not expect Kwon to face criminal prosecution in the US. They said he was more likely to face civil charges and administrative penalties.

In South Korea, where Kwon is from, the government has launched an investigation into the collapse of Terra and Terrausd. A class action lawsuit has also been filed against Terraform Labs, Kwon and another co-founder. In addition, the Seoul Police Department is investigating whether Terraform Labs employees embezzled the company’s bitcoin.

Terraform Labs used to have a subsidiary in South Korea. However, Kwon broke it up days before the collapse of UST and LUNA.

What do you think of the SEC investigating the collapse of UST? Let us know in the comment section below.

Kevin Helms

As an Austrian economics student, Kevin discovered Bitcoin in 2011 and has been an evangelist ever since. His interests lie in Bitcoin security, open source systems, network effects and the interface between economics and cryptography.

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