-
A
New
York
jury
has
begun
deliberations
in
the
SEC’s
civil
fraud
case
against
Terraform
Labs
and
its
co-founder
Do
Kwon -
The
SEC
has
accused
the
defendants
of
misleading
investors
about
the
stability
of
its
so-called
“algorithmic
stablecoin,”
Terra
USD
NEW
YORK
– Lawyers
for
the
U.S.
Securities
and
Exchange
Commission
(SEC)
rested
their
case
against
Terraform
Labs
and
its
co-founder,
Do
Kwon,
on
Friday,
releasing
a
New
York
jury
to
decide
whether
Kwon
and
his
company
are
liable
for
allegedly
misleading
investors
about
the
stability
of
Terra
USD
(UST)
and
its
integration
with
a
Korean
mobile
payments
app.
The
so-called
“algorithmic
stablecoin”
was
supposed
to
maintain
a
peg
to
the
U.S.
dollar
through
on-chain
mint-and-burn
mechanics
with
its
sister
token,
LUNA.
But
in
May
2022,
the
UST
de-pegged
and
began
a
death
spiral
that
eventually
took
down
the
entire
Terra
ecosystem,
wiping
out
approximately
$40
billion
in
market
value
in
its
wake.
During
its
case,
the
SEC
argued
that
Kwon
and,
under
his
direction,
Terraform
Labs
deceived
everyday
investors
about
the
nature
of
that
algorithm,
implying
that
it
allowed
UST
to
“naturally
heal”
and
“automatically
self-heal”
in
the
event
of
a
de-peg.
But
there
was
no
self-healing
or
algorithmic
magic
that
kept
UST
pegged
to
the
dollar,
the
SEC
argued.
Instead,
the
value
of
UST
was
maintained
through
continuous
trading
activity,
including
large-scale
trading
done
by
institutional
investors.
During
her
closing
arguments
on
Friday,
SEC
attorney
Laura
Meehan
told
the
jury
that
during
a
prior
de-peg
in
May
2021,
Kwon
and
Terraform
Labs
made
a
“secret
agreement”
with
Jump,
a
trading
shop
that
acted
as
a
market
maker
for
Terraform
Labs,
to
step
in
and
buy
millions
of
dollars
of
UST
off-chain
to
inflate
the
value
and
bring
it
back
to
parity
with
the
dollar.
Meehan
added
that
after
Jump’s
intervention,
Kwon
and
his
company
intentionally
kept
Jump’s
involvement
quiet,
wanting
instead
to
use
the
re-pegging
as
evidence
of
the
algorithm’s
effectiveness.
“Defendants
lied
for
years.
They
lied
about
the
success
and
size
of
their
blockchain
…
they
lied
about
the
stability
of
their
algorithm,”
Meehan
said.
“They’re
still
parading
themselves
around
like
they’re
a
real
company,
like
they’re
legitimate.”
As
Meehan
neared
the
end
of
her
remarks,
the
Manhattan
courtroom
gently
shook
– not,
as
District
Court
Judge
Jed
Rakoff
quipped,
“with
the
force
of
the
SEC’s
arguments”
but
with
the
tremors
of
a
4.8
magnitude
earthquake
in
neighboring
New
Jersey.
Defense
pushes
back
Lawyers
for
Terraform
Labs
and
Do
Kwon
made
their
closing
arguments
after
the
SEC,
pausing
intermittently
as
emergency
alerts
for
the
earthquake
periodically
sounded
from
cell
phones
across
the
courtroom.
The
defense,
led
by
attorney
Louis
Pellegrino,
told
the
jury
that
the
mobile
payment
app
Chai
did,
in
fact,
utilize
the
Terra
blockchain
for
a
variety
of
things,
including
refunding
purchases
and
providing
liquidity.
But
mostly,
Pellegrino’s
argument
focused
on
the
alleged
“secret
agreement”
between
Jump
and
Terraform
Labs,
and
whether
or
not
Kwon
and
his
company
had
actually
lied
to
investors
about
the
nature
of
the
algorithm.
“The
mechanism
was
not
a
computer
that
functioned
on
its
own,”
Pellegrino
said.
“It
wasn’t
some
magical
machine…and
everyone
knew
it.”
Minting-and-burning
to
maintain
the
peg
had
to
be
done
by
market
participants,
he
argued,
and
Kwon
and
Terraform
Labs
had
“never
claimed”
otherwise.
Those
market
participants
included
companies
like
Jump
– which
Pellegrino
said
had
a
formal
agreement,
not
a
secret
one,
to
provide
liquidity
to
Terraform
Labs
when
needed.
“All
reasonable
purchasers
knew
about
the
risks,”
Pellegrino
argued,
pointing
to
a
trading
memo
from
Galaxy
Digital
citing
the
inherent
risk
of
a
collapse
of
the
ecosystem.
When
that
collapse
eventually
came,
Pellegrino
said,
it
was
as
the
result
of
a
devastating
short
attack
– carried
out
by
hedge
funds
including
Wintermute
Trading,
Celsius,
and
Jane
Street
– that
made
Terraform
Labs
a
victim
alongside
its
investors.
“Terraform
is
still
here,
trying
to
make
things
better,”
Pellegrino
said.
“Terraform
is
no
house
of
cards.”
Terraform
Labs
filed
for
bankruptcy
protection
in
January.
During
his
testimony
earlier
this
week,
current
CEO
Chris
Amani
testified
that
the
company
had
approximately
$150
million
in
assets
remaining
and
that
he
made
an
annual
salary
of
$3
million.
No
Do
Former
CEO
and
defendant
Do
Kwon
was
absent
from
court
for
the
duration
of
the
trial.
Kwon
remains
in
Montenegro,
where
he
has
been
since
his
March
2023
arrest
for
using
fake
Costa
Rican
travel
documents
en
route
to
Dubai
after
months
on
the
lam.
Kwon
served
a
prison
sentence
for
his
crime
but
was
released
on
bail
and
placed
under
house
arrest
in
the
Balkan
country
last
month.
The
country’s
Supreme
Court
is
currently
weighing
competing
extradition
requests
from
the
U.S.
and
South
Korea,
Kwon’s
native
country,
which
both
want
to
try
him
on
criminal
fraud
charges
in
addition
to
civil
ones.
Kwon’s
ultimate
destination
remains
unclear.
