SEC posts information page for investors harmed by Terraform fraud

The U.S. Securities and Exchange Commission posted an information page for investors affected by Terraform Labs, the firm behind the algorithmic stablecoin that fell dramatically a few years ago. 

The SEC said it had been receiving questions from investors about how compensation would work following a settlement reached by both parties last month. 

Terraform Labs agreed to pay $4.47 billion as part of the settlement reached with the SEC. The company is set to pay $3.58 billion in disgorgement and $420 million in a civil penalty. The settlement terms would also block its co-founder, Do Kwon, from becoming an officer or director of any public firm.

The SEC asserted on its page that it will not receive any payments until investors and creditors are paid in full in the corresponding bankruptcy case. The Chapter 11 plan confirmation hearing and start date are expected to happen in the fall, the SEC added. 

The SEC charged Terraform Labs and Kwon in February 2023 over the algorithmic stablecoin Terra USD (UST), which collapsed a year earlier, wiping out billions. Algorithmic stablecoins, like UST, use market incentives via algorithms to maintain a stable price. Terra was linked to Luna, a governance token, to keep the prices stable. 

In April, a jury found that both Terraform Labs and Kwon misled investors and were found liable for civil fraud. 

Crypto warnings

Also on Tuesday, the U.S. Commodity Futures Trading Commission issued a customer advisory warning customers of "follow-on frauds." 

“We tend to see this in what we call relationship confidence frauds or what the perpetrators call pig butchering frauds,” said Melanie Devoe, director of the CFTC's Office of Customer Education and Outreach in a statement. “These frauds in and of themselves are heinous crimes that leave victims with significant losses and broken-hearted. Then, the victims are harmed again by fraud-recovery schemes or convinced to open bank accounts and move stolen money.”

The CFTC cited a few examples of fraud involving crypto, adding that recovering funds is hard if dollars "are first converted to bitcoin (BTC), Tether (USDT), or other crypto assets."

The agency also advised never to send crypto to anyone that a person knows only online. It said investors should check if a crypto platform is registered with the Financial Crimes Enforcement Network before trading.

Both the SEC and CFTC have brought charges involving the crypto industry over the years. During the last fiscal year, half of the CFTC's enforcement docket was crypto-related, CFTC Chair Rostin Behnam told lawmakers earlier this month. 

"It is a staggering statistic for an agency that oversees trillion dollar markets to have to allocate half of its resources to a market it does not regulate or does not get appropriated funds for. It puts both markets at risk and really exposes the fact that there's so much fraud in the crypto space," Behnam said.