Tai Mo Shan to Pay $123 Million for Negligently Misleading Investors About Stability of Terra USD.
The order also finds that Tai Mo Shan acted as a statutory underwriter in distributing LUNA crypto assets, which were offered and sold as securities.
Washington D.C. (STL.News) The Securities and Exchange Commission recently charged Tai Mo Shan Limited (TMSL) with misleading investors about the stability of Terra USD (UST), a purported “algorithmic stablecoin” issued by Terraform Labs PTE Ltd. (Terraform), when UST dropped from its purportedly fixed exchange rate of 1 UST to $1, known as a peg. The Commission further charged Tai Mo Shan with offering and selling securities in unregistered transactions by acting as a statutory underwriter with respect to certain of its offers and sales of LUNA, a crypto asset issued by Terraform and offered and sold as a security. Tai Mo Shan is a wholly-owned subsidiary of Jump Crypto Holdings LLC.
Terraform and its founder, Do Kwon, were found liable for fraud and unregistered securities offerings by a federal district court in April 2024 and agreed to pay $4.5 billion to harmed investors. The SEC’s order finds that, when UST devalued from its $1 peg in May 2021, TMSL and Terraform entered into an agreement that incentivized Tai Mo Shan to purchase UST in exchange for Terraform “vesting” TMSL’s existing option to purchase LUNA at a discount to its then-prevailing market price. On that day and subsequent days, TMSL tried to restore UST toward its $1 peg, including by purchasing more than $20 million UST. In light of prior statements by Terraform that its algorithmic mechanism would maintain UST’s $1 peg, Tai Mo Shan acted negligently by trading UST in a manner that deceived the market into believing that Terraform’s algorithmic mechanism was working to stabilize UST when in reality, the price was being stabilized, at least in part, by Tai Mo Shan’s large purchases of UST, which were incentivized by Terraform.
The SEC’s Order also finds that, from at least January 2021 to May 2022, TMSL acted as a statutory underwriter with respect to LUNA, a crypto asset offered and sold as a security. Tai Mo Shan acquired certain LUNA crypto assets from Terraform with a view toward distribution after it offered and resold LUNA as securities into the market on U.S.-based crypto asset trading platforms shortly after acquiring it from Terraform.
“This case reminds us that, too many times in the crypto markets, we’ve seen significant investor losses due to fraud,” said SEC Chair Gary Gensler. “Here, the impact reverberated throughout the crypto markets, eventually costing the savings of countless investors. Regardless of the labels, crypto market participants should comply with the securities laws where applicable and not deceive the public. Otherwise, investors get hurt.”
As part of the settlement, Tai Mo Shan agreed to pay $73,452,756 in disgorgement, $12,916,153 in prejudgment interest, and a $36,726,378 civil penalty. Without admitting or denying the SEC’s findings, Tai Mo Shan agreed to cease and desist from violations of the registration and fraud provisions it violated.
The SEC’s investigation was conducted by Liz Canizares, Derek Kleinmann, and Daniel Sinnreich, with assistance from analyst Bryan Hsueh and trial attorneys Carina Cuellar and Laura Meehan. The investigation was supervised by Don Battle, Michael Brennan, James Connor, Kristin Pauley, and Jorge Tenreiro.
