The SEC's large-scale investigation into Terraform Labs and Jump Trading has finally yielded results. The Securities and Exchange Commission has fined Tai Mo Shan, a subsidiary of Jump Trading, $123 million for defrauding investors and engaging in numerous fraudulent acts related to LUNA-UST.
SEC fines Jump Trading subsidiary $123 million for defrauding investors about LUNA-UST
On December 20, 2024, the U.S. Securities and Exchange Commission (SEC) published a press release announcing its decision regarding the charges against Tai Mo Shan Limited, a subsidiary of Jump Trading.
The U.S. SEC charged Jump Trading subsidiary Tai Mo Shan Limited with misleading investors about the stability of Terra USD (UST) and acting as a legal underwriter in unregistered transactions in the LUNA crypto asset. As part of the settlement, Tai Mo Shan agreed to pay $123…
— Wu Blockchain (@WuBlockchain) December 21, 2024
The SEC accused Tai Mo Shan of deceiving investors about the stability of the Terra USD (UST) stablecoin, claiming that UST was an "Algorithmic Stablecoin" with a consistently stable exchange rate. However, as the cryptocurrency community has witnessed, UST was unable to maintain the $1 peg, plummeting in value and ultimately leading to the collapse of the entire LUNA-UST ecosystem.
Additionally, the SEC discovered that Tai Mo Shan acted as a legal underwriter in the distribution of the LUNA Token, offering it as an unregistered security.
This is the result of a large-scale investigation that began in 2023, when the SEC confirmed that Jump Trading was the "mysterious investment fund" that had manipulated the prices of LUNA-UST. As a result, the SEC began investigating the head of Jump Crypto, Kanav Kariya.
The SEC's focus on the matter is believed to be the reason why Mr. Kanav Kariya resigned as the Chairman of Jump after 6 years, as well as the fund's scaling back of its cryptocurrency operations.
Specifically, the SEC alleges that in May 2021, Terraform Labs and Tai Mo Shan reached a secret agreement to "rescue the price" of UST when the stablecoin depgged to $0.92. Under this agreement, Jump would spend money to buy UST in the market to reduce the supply, thereby helping UST return to the $1 peg within a few days.
In return, Terraform Labs would modify the terms of the LUNA loan agreement with Jump, allowing the fund to unlock its LUNA Tokens earlier. The traded amount included 61.4 million LUNA, sold at a price 99% lower than the market price at the time. Jump is said to have profited $1.3 billion from being able to unlock LUNA early.
Terraform Labs and Do Kwon later claimed that UST's return to the peg was proof of the effectiveness of the Algorithmic Stablecoin model, attracting more people to believe in the project. LUNA's price rose from $6 at the end of May 2021 to a peak of $116 in April 2022, just one month before the entire system collapsed.
SEC Chairman Gary Gensler stated:
"This case reminds us that, time and again in the crypto markets, investors have suffered significant losses due to fraud.
Moreover, the ripple effects of fraudulent conduct spread throughout the market, ultimately leaving countless investors with empty pockets. No matter the company or organization, participants in the crypto markets must comply with the securities laws and cannot deceive the public. If they do, investors are the ones who pay the price."
Under 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. The total amount is $123 million.
However, Tai Mo Shan neither admitted nor denied the SEC's investigative findings, but only agreed to cease the violative conduct.
Compiled by Coin68
