2.5Y After Terra and Luna Collapse, SEC Reaches $123 Million Settlement with Crypto Firm

The Securities and Exchange Commission (SEC) has fined Tai Mo Shan Limited $123 million for reportedly misleading investors about the stability of the Terra USD (UST) stablecoin and conducting unregistered securities transactions involving LUNA crypto assets.

Tai Mo Shan Hit With $123M SEC Fine Over Terra USD Stablecoin Allegations

According to the SEC statement, Jump Crypto Holdings subsidiary acted negligently when it engaged in trading activities that created a false impression about Terra USD's stability mechanism during a May 2021 price decline.

The firm purchased over $20 million of UST tokens while receiving incentives from Terraform Labs, masking the fact that the stablecoin's dollar peg was being maintained through direct market intervention rather than its promised algorithmic mechanism.

The enforcement action follows an April 2024 court ruling that found Terraform Labs and founder Do Kwon liable for fraud, resulting in a $4.5 billion settlement. The SEC determined that Tai Mo Shan also violated securities laws by acting as an unregistered underwriter of LUNA tokens between January 2021 and May 2022.

“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.”

The settlement includes $73.5 million in disgorgement, $12.9 million in interest, and a $36.7 million civil penalty. Tai Mo Shan agreed to the terms without admitting or denying the findings.

Terra Ecosystem Collapse Led to $50B Cryptocurrency Losses

The cryptocurrency market experienced a significant disruption when Terra's ecosystem, one of the largest blockchain networks, failed in May 2022, resulting in substantial market value losses and broader industry implications.

The situation deteriorated when large withdrawals from the Anchor Protocol triggered a deviation in UST's dollar peg. This initial price movement led to increased selling pressure, causing both UST and LUNA tokens to decline rapidly. LUNA, which had reached record highs earlier that spring, depreciated to negligible values within days.

The Terra blockchain temporarily ceased operations as market participants attempted to process transactions amid the price decline. The event affected multiple cryptocurrency firms, leading to operational challenges for several digital asset lenders and trading platforms.

Do Kwon, who founded Terraform Labs, faced subsequent legal challenges. Authorities apprehended him in Montenegro while traveling with incorrect documentation. U.S. prosecutors filed multiple charges, including allegations of securities violations.

The incident prompted regulatory bodies worldwide to increase their scrutiny of stablecoin mechanisms and cryptocurrency markets. Financial supervisors have since implemented stricter oversight measures for digital asset operations, particularly focusing on stablecoin reserves and trading practices, including MiCA in Europe.